Bullish Bitcoin at a 5-week high – what next?
There was no major economic announcement, but Bitcoin still managed to reach a five-week high yesterday.
The benchmark crypto currency rose to an intraday high of $11,736 before profit taking pushed the exchange rate down. The price fell to a concrete support level at $11,500.
At the beginning of the Asian meeting on Tuesday, BTC/USD was still lurking near the said price floor.
Bitcoin traders see the price within a worryingly convincing rising channel. Source: TradingView.com
The sudden rise in the Bitcoin price was part of a five-day winning streak. Traders increased their exposure to the crypto-currency in the hope that the U.S. Congress would pass the second COVID-19 stimulus package.
They also took long positions in BTC/USD after Square, a multinational cash company, reported $50 million worth of BTC on their balance sheets – nearly 1 percent of total assets.
But the impact of Square’s announcement waned as Bitcoin tried to close over $11,500 this weekend. At the same time, the stimulus package experienced a further delay after the Democratic Speaker of the House of Representatives, Nanci Pelosi, rejected the Republicans‘ $1.8 trillion relief proposal.
The combination of square and stimulus has reduced Bitcoin’s prospects of rising higher. But the crypto-currency did it anyway – with catalysts coming from the U.S. stock market.
Profit Season Q3
The $11,500 rally in the Bitcoin market coincided with a recovery on Wall Street.
All three major indices climbed higher during Monday trading. The S&P 500 climbed 57.09 points or 1.6 percent to 3534.22, its second highest level just before that date. Meanwhile, the Dow Jones rose by 250.62 points or 0.9 percent to 28837.52.
The technology-intensive Nasdaq Composite recorded its third highest closing level with an increase of 2.6 percent to 11876.26.
Bitcoin rose on Monday almost in line with the Wall Street indices.
The synchronized earnings at Bitcoin and on Wall Street came just before the third quarter earnings season. The Wall Street Journal reports that analysts had raised their estimates during the financial period in question.
„As the economy continues to recover slowly, the profits of the major U.S. companies in the leading stock index in the third quarter are now expected to decline by 20 percent year-on-year,“ the publication said. „This is an improvement over the 25 percent decline expected at the end of June and the 32 percent decline reported for the second quarter.
This has increased the likelihood that investors will hold their share positions. In return, selling pressure was reduced on Bitcoin – an asset that had become the scapegoat for investors in March 2020 to make up for their stock market losses.
Warning signals
With polls suggesting a clear victory for Joe Biden in the U.S. presidential election, investors expect more financial support from the government after November 3.
Until then, economists have revised their forecasts downward, which could lead to a period of higher volatility in both the U.S. stock and Bitcoin markets.
FactSet, a firm that surveys Wall Street analysts on their predictions for the S&P 500, points out risks in the current uptrend. The Connecticut-based company comments that 184 of the 285 companies listed in the U.S. benchmark index have withdrawn from publishing their financial data and forecasts.
This raises fears of an overvaluation of stocks, which would later lead to a significant downside risk. This in turn could put Bitcoin’s rally at risk of stalling or reversing.