December 3, 2019

Bitcoin hits six month low amid China-US trade wars

China USA trade warsIt is rather quiet at Bitcoin bulls’ headquarters at the moment with price action looking very grim. This is after the largest digital currency by market value dropped to $7,000 on Monfex. This marked the lowest point the digital currency has been since May, and has many already declaring it a bearish sign. This drop has wiped out the gains made in October that saw the price rally from $7293 to $10,350. The mid October Bitcoin buzz is long gone and day traders are looking to short frantically.

This is because the technical indicators tell a sad story for bulls. According to the weekly relative strength index (RSI), the down tick in BTC price looks like it is set to stick. The RSI indicator whose claim to fame is indicating market overbought and oversold regions has pulled back to 43:00, which is the lowest point since back in mid-march. This means that those declaring it a bear market have a strong case since any RSI reading below 50 indicates a bearish market sentiment. The series of lower lows and lower highs as seen below is a price action sign that price could be heading further towards the floor. A further drop to the $6,800 area can therefore not be ruled out.  If you are faint of heart you might just want to look away now and read what’s below this chart.

USA CHINA bitcoin chart

The outlook according to the weekly chart will remain in favor of the bears if the RSI reading stays below 50. On paper, a move above 50 indicates a bullish sentiment. So a bounce above that level may just ignite a number of buy orders that will push the price up. Enough with the charts and the technical though, let’s examine the fundamentals for a while. A big fundamental is Chinese activity and the almost constant trade tensions between Trumps United States and Xi Jinping’s China.

As if Chinese products going into the USA were not paying enough tariffs, the trump administration is threatening to add on to the tariffs. President Trump’s new threat sent shockwaves across the markets (as expected). Just like we’ve seen before, if china gets a boost the markets seem to come alive and when china sneezes, the markets seem to catch flu. This could explain why some commentators believe that the tariff threat by the US, has the largest cryptocurrency by market cap Bitcoin, slipping to a six month low. The Trump threat has left the white house reeling as well since the possibility of a phase one trade agreement between the countries is now in jeopardy.  

In Wall Street, investors took trump’s words as a cue to abandon the markets and jump on safe haven assets like Gold. This left the Dow jones, S&P 500, and the NASDAQ taking hits that led to price decline. Investors abandoning these Wall Street heavy weights for haven deals created a hedging effect that led to Gold rising. One of the world’s oldest and valued assets Gold, which is known not only for its beauty but also its longevity as a store of value gained quite a bit.

This investor hedging has had gold outperforming Bitcoin for the first time in a while. This is also adding to the Gold or Bitcoin debate that has been raging on for a while, which has proposers arguing that gold is the more stable asset and more trustable compared to volatile Bitcoin. Pro Bitcoin commentators on the other hand, have deemed gold as a bulky asset of the past that gains very slowly as compared to Bitcoin.

While Gold was enjoying some long lost attention, investors stayed away from Bitcoin on November 20 leading to the Bitcoin to dollar rate slipping by 0.4%. The pair’s failing exchange rate led to a 4.8% weekly loss rate on while some are of the opinion that Bitcoin is about to slip into a 2018 esque Bitcoin winter, other analysts believe the current downturn is just a correction of a long term bias after spiking early in the year. A pseudo anonymous trader Bitcoin jack tweeted that he expected the correction to continue unless the market changed course and moved to better ranges on the parabola indicator, which is an indicator that tells the direction and predicts the potential of reversal for an asset.

The U.S China trade impasse is a complete turnaround from what was seen back in early November. That time, the trade talks seemed to be going smoothly and talks of a possible deal had a steroid effect on the markets. Talks of china’s possible easing of trade tariffs created rumors of a deal being close. The difference between then and now is that Bitcoin gained then but is losing now. The trade uncertainty that was there in early November led to hedging in Bitcoin’s favor which helped the price. The current impasse has led to a bleeding that has left both the S&P 500 and Dow jones reeling. Bitcoin seems to also be hard hit as people pull their money away. The uncertainty has left a bitter taste in the mouth of many investors who are looking to cut their losses and invest in safe haven assets.

The speculative nature of Bitcoin and the volatility of the asset has it looking very undesirable at the moment. The situation has words of Fundstrat’s Tom Lee ringing in our heads. Back in September, he said that Bitcoin was not a safe haven asset but rather falls in the category of the S&P 500. This suggests a correlation that means the two almost mirror one another. Following Bitcoin’s downturn, Tom Lee tweeted;

“The downturn in Bitcoin followed the risk-off selloff in [the] equities. [It] reinforces our ‘unpopular’ opinion that Bitcoin does not do well in a ‘trendless macro’ environment, and new highs needed in S&P 500 before BTC can blast off. Why? We think crypto is retail and thus, risk on.”

We have to wait and see if the bearish sentiment continues to hold ground and for how much longer.