Bitcoin On The Backfoot
Following a bumper rally over September and October, leading cryptocurrencies have been on the backfoot over November, with market benchmarks such as Bitcoin, Ethereum and Litecoin having all traded lower this month. Bitcoin, which is still the top cryptocurrency with the biggest market cap, is currently down around 20% from the all time highs printed earlier in the month. It’s a similar story with Ethereum and Litecoin which are both down 19% and 32% respectively. While volatility is to be expected when trading crypto, the big question crypto watchers are asking is: what is causing the current pull back and how bad will it get?
US Dollar Weighing on Crypto
There are a number of factors which are weighing on crypto here. The key driver currently, however, is the strength in the US Dollar. While Bitcoin is not pegged to the US Dollar, or backed by any physical assets such as gold, the leading cryptocurrency has developed more traditional trading dynamics as the market becomes more mature. Given Bitcoin’s nature as a high yielder, the currency tends to trend lower when the Dollar is moving higher. This is especially true when USD is trending higher because of Fed tightening expectations.
Dollar Higher on Fed Tightening Expectations
In terms of explaining the current Dollar drive, the key issue is the surge in inflation. While the Fed announced tapering at the latest FOMC meeting earlier this month, it did so along with guidance that tightening would follow a steady and gradual pace, with no pressure to raise rates when tapering is completed into summer next year. However, with inflation continuing to surge higher and with other key indicators improving also, the market is now betting that the Fed will be forced to upgrade its tightening schedule.
Near Term Weakness Likely
With the US Dollar currently showing no signs of slowing down, the near-term outlook for BTC and the broader crypto-complex remains geared towards lower prices. However, given the hawkish expectations underpinning the Dollar here, there are risks that should we see any data misses, or should the Fed fail to deliver a hawkish update at the December FOMC, we could see a disappointment-fuelled sell off in USD, which would allow for a recovery in the crypto space.
Bigger Hands Not Phased
Looking at trade data for BTC specifically, we can see that bigger players are not perturbed by the current correction and are actually using the dip to add to their positions. Additionally, some of these bigger players have also been setting new orders well above market, suggesting their view that BTC is likely to continue higher in the medium term. While this dynamic remains in place, the current pullback is likely to be short lived and a bullish trend resumption is likely on the horizon.
Technical Views
BTC
The reversal lower from the latest failure at the 67720 level has seen the market trading back down to test the 57805 level. Price is currently holding here as support though, with both MACD and RSI lower, there is room for a further dip lower. The key area to watch for bulls will be the 52930 level where we also have the bull channel low offering technical confluence.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.