Bitcoin Knocking at All-time Highs after 3 years, USD 20,000 on cards?

Summary

  • Bitcoin is just 12% shy of its previous all-time high of USD 19,891.0 as strong momentum unfolds.
  • The cryptocurrency is presently well supported by market sentiments over the need for hedging risk against a macro backdrop of unprecedented levels of fiscal stimulus and low or negative interest rates.
  • Since the last halving day on 11 May 2020, the currency has gained tremendous strength as the supply narrows.
  • Furthermore, the higher acceptance of bitcoin is also pulling some strings up with PayPal – the global payment technology giant recently announcing its intention of allowing bitcoin transactions across its platform.
  • The annual volatility figure is spiking.

Bitcoin is grabbing eyeballs again. The currency continues to climb and is closing in on the levels not seen since it reached its highest ever mark three years ago.

Bitcoin is just 12% shy of its previous all-time high of USD 19,891.0, last seen on 17 December 2017 with the currency clinching a high of USD 18,180.0 (as on 18 November 2020 3:21 PM AEDT). The currency has now penetrated its long-term resistance USD 18,000 mark, and the market participants are closely watching the USD 20,000 levels. The chorus is growing for the crypto to scale the USD 20K levels.

Bitcoin has had a volatile 2020, the digital currency is up 4.5x from March 2020 lows of USD 4,001.0 (intraday low on 13 March 2020) and hit USD 18K levels.  

The Need for a Risk Hedge Surges

The current market speculations and considerable uncertainty across risk assets, including equities and commodities over another emerging wave of COVID-19 cases, seem to be propelling the sentiment around the digital asset originally developed for safeguarding one’s wealth during the mayhem.

Apart from a considerable market risk hovering over risky assets, other potential reasons such as higher acceptance are also lifting the market mood around the currency, which now looks set to test its previous all-time high.

Furthermore, against a macro backdrop of never seen levels of fiscal stimulus and low or negative interest rates, many investors are diverting their money into crypto assets.

The Squeezing Supply

Since the last halving day on 11 May 2020, the reward for mining a block in a blockchain has been reduced by 50 per cent to 6.25 bitcoins per block, which would be further reduced to 3.125 per block after 210,000 blocks have been mined.

Many industry experts anticipate that with current computational power and hash rates, the next halving would fall on 8 May 2024 21:09:46 UTC.

With more blocks being mined thanks to higher computational power, it could eventually lead to a supply squeeze in bitcoin, which might bode well for Bitcoin to scale the psychological USD 20,000 mark.

Also Read: DeFi Led Sentiments Keep Bitcoin Afloat

PayPal Accepts Bitcoin

On 21 October 2020, PayPal disclosed its intention to enter the cryptocurrency space by allowing its customers to transact in Bitcoins and various other cryptocurrencies through their PayPal accounts. Furthermore, the Company envisions to enable its ~ 26 million merchants to accept bitcoin as a source of financial transactions and ownership transfer.

To begin with, the global payment technology giant would enable four currencies on its platform, namely, Litecoin, Bitcoin Cash, Ethereum, and Bitcoin.  

To Know More, Do Read: PayPal throws its hat in the cryptocurrency ring, Bitcoin to become ubiquitous

Bitcoin Crystal-Gazing

  • Spiking Volatility

As could be seen from the above chart, Bitcoin is witnessing heightened volatility. The annual volatility figures have climbed over 45 per cent, suggesting that there is a 45 per cent deviation from the mean return over the selected period of 10 August 2020 to 18 November 2020.

As the currency is gaining a sentimental uplift, it could give whipsaws to low-risk investors as at present, the volatility of the currency is considerably high.

  • Bitcoin on Charts

BTC/USD Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On the daily chart, it could be seen that Bitcoin has gained considerable momentum in the last couple of months, crossing both medium-term resistance of USD 12,000 and USD 16,500. At present, bitcoin prices are hovering around the USD 18,000 mark – a psychological resistance.

  • The currency is trading well above its 200-day exponential moving average and 50-day exponential moving average, reflecting that the major trend after a considerable decline is once again an uptrend.
  • Furthermore, volume indexes and price & volume oscillators are also moving in tandem with the price action, reflecting that the rally is well supported by a large volume.
  • The On Balance Volume (index) is currently at an all-time high, showing positive divergence and an uptrend.
  • Likewise, the Chaikin Money Flow (oscillator) is trading well above its threshold of 0, confirming the strength of the existing trend. However, the oscillator is still trading below its resistance peak of 0.35 as the price is yet to break its previous all-time high.

Currently, the Chaikin Money Flow has tested the resistance once and should be monitored ahead as it is one of the leading indicators.

BTC/USD Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

A further scrutiny of the recent price behaviour reveals that the currency has now given a volatility break with prices breaching the +2 Standard Deviation of the 20-day simple Bollinger Band®.

The ability of bulls to keep the volatility breakout intact would decide the short-term price action of the currency. Also, over the short-term, Bitcoin prices have shown a few inside bars, which have been followed by an outside bar, as marked with a circle on the above chart.

  • The short-term set up near the top shows market enthusiasm, which could further be confirmed by observing the rate of change (index). The ROC is constantly sloping up, supporting momentum towards the USD 20,000 mark.
  • Also, the 14-day Relative Strength Index (oscillator) is well below the overbought level of 100.0 (revised as the trend remains strong).

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