Analysis | January 21, 2021

Bitcoin: Outlook and research

The media in recent months has been full of stories about Bitcoin going ever higher but Bitcoin is now seeing a big correction Will there be more downside or will we recover to the upside? Below we will take a look at the fundamentals sentiment and technical.

In terms, of Bitcoin, it’s seen as a hedge against USD weakness, and the USD has been very weak in the last few months but there are now signs of it showing strength and speculators are holding their biggest short USD position since 2011. If the USD mounts a big broad-based rally Bitcoin will see more weakness.

On the chart below Bitcoin has taken out the 21-day moving average and is now resistance on the upside. A close below 34k could see a move down to 27.5k. Open interest and volumes have been high as we can see on the right and we think there are a lot more speculators who will exit on stop – At present the odds favour more weakness in our view.

In terms of the Fed balance sheet its been expanded and the view in the market has been If the Fed print money buy Bitcoin but on the chart below we can see that the Fed balance sheet expansion has slowed and is likely to slow going forward so any Bitcoin investor should watch the correlation below.

Final Words

A lot of traders piled into Bitcoin as it soared higher most buying simply on “fear of missing out” Bitcoin became a bubble and that bubble has now burst. Bitcoin going forward will remain highly volatile in our view with big swings to the upside and downside. Finally, there is a lot of talk about Bitcoin gaining mainstream acceptance in terms of an investment, but we are a long way from this.

Big institutional investors are not coming in big numbers yet and many Central banks are not in favour of it – Fed Treasury Secretary Janet Yellen said she was not “a fan” and added Bitcoin is ” A particular concern for terrorist financing, money laundering”. This comes after ECB President Lagarde’s echoed similar views. For now Bitcoin will remain a niche investment for small investors and traders and will remain highly volatile to big moves up or down so if you want to trade it strict money management is essential.



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