Bitcoin breaks 10k alongside gold rally

Sean MacLean
Research Strategist
28 July 2020
Bitcoin is flying alongside precious metals and safe haven currencies as investors hedge pandemic uncertainties and unprecedented stimulus measures, which many fear will be inflationary.

This week the crypto has ripped above $10,000 USD to its highest level since August 2019.

Daily chart: Bitcoin. The crypto in USD terms staged a steady recovery after the March sell-off, testing 10,000 ahead of the Bitcoin halving on 11 May, and again several times until early June. Price broke through 10,000 successfully on Monday, closing at 10,872.

The 10,000 handle had been a level to beat since the market crash in March. Bitcoin rallied and tested 10,000 USD ahead of the Bitcoin halving, which occurred on 8 May, before falling to its 200-MA (black line) on the day. It was a case of “buy the rumour, sell the fact”, I suppose. 

It’s tested the level several times since, failing to break higher and hovering around its 50-day EMA (purple line) since early June. Charging higher this week, 12,000 becomes the near-term target for the bulls, which was reached between June and August last year - but Bitcoin has a volatile history. Whether these levels can be sustained is yet to be seen, and a lot of that is hinged on whether traders believe it to be a safe store of value. If you have a view, you can express it with our Crypto CFD offering, which requires no crypto wallet and only a small amount of upfront capital.

So why the rally now?

There’s a lot at play here. A weaker USD, gold rallying, lower real yields on US treasuries - traders are seeking a safe haven alternative to cash as they hedge against fiscal and monetary stimulus measures, from record government deficits to low interest rates and quantitative easing. There are genuine fears that these historic measures could have inflationary consequences, and for some, Bitcoin is a vehicle to hedge against that risk.

Is Bitcoin the digital gold?

For some, Bitcoin is a viable alternative to traditional monetary systems, and they’ve been making that bid this week. Hardcore crypto fans will argue that Bitcoin is a store of value, similar to gold and fiat currencies. Skeptics will point out that cryptocurrencies are currently too volatile and illiquid to truly offer a safe store of value.

But perhaps the technicalities don’t matter so much, and what matters more is whether the majority of crypto traders believe this to be true or not - now and into the future.

Momentum will also be a big play here, just as it has been for gold. And speaking of gold: the higher it soars, I think the more Bitcoin will receive a bid. 

Also watch the US dollar with the USDX, which has been offered lower for seven straight trading days now. It’s selling off ahead of this week’s FOMC meeting, when markets expect a new policy regime and a weaker USD. If the USD continues to be offered lower, that will help Bitcoin too.

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