Bitcoin stages surprise rally
After many months of stability where Bitcoin (BTCUSD) has traded between $3300-$4200, this mornings’ sharp rally to $4700 appears to have taken the market completely by surprise. This may have been caused in part by Stop Loss buying once the $4170 level was breached, and it doesn’t really matter whether the buying was corrective ie the actual crystallisation of losses from Short positions or speculative buying from momentum traders. The surge of buying was far stronger than might reasonably have been anticipated and a rally of slightly less than 14% will please those who have kept faith with the cryptocurrency. This then opens up the thorny question of what to do now. The introduction of Bitcoin derivatives to the futures markets added liquidity at a time when it was needed. The decline in appetite for crypto over the last year has undoubtedly caused some of that liquidity to be diverted to earn more useful returns elsewhere. This has the feel of a technical rally, rather than a new-found faith in Bitcoin. The reason for that is the ferocity of the rally – this simply doesn’t occur in mature, liquid markets. The most likely scenario here is a slow decline as some longer-term holders take advantage of this unexpected windfall. We feel that buying opportunities will return at better levels than this, although it is unlikely to be a swift process.