Bitcoin (BTC) price veered sharply from the $ 11,100-11,300 resistance range, down 6%. After a sharp downturn, analysts remain cautiously optimistic about BTC and the rest of the cryptocurrency market.
Analysts usually link Bitcoin’s short-term decline to the uncertainty surrounding the COVID-19 pandemic. On September 21, the Dow Jones Industrial Average dropped more than 800 points to its lowest level yet. Bitcoin, gold and other risk factors collapsed, resulting in most asset classes being sold.
The final conclusion was similar to the March market crash, when most assets were down completely. Thus, analysts say some progress in developing a new vaccine or stimulus package could revive market sentiment.
Bullish Arguments for Bitcoin
John Todaro, head of research at TradeBlock, an institutional trading platform, told Cointelegraph that BTC’s short-term performance is arbitrary. Todaro believes that investors are increasingly positioning themselves in favor of “risk-free” assets due to vague options, lack of incentives and an increased number of COVID-19 cases. If all three factors continue to decline, Bitcoin is likely to see a stronger decline.
But Bitcoin’s price could also recover in the short term if any of the three factors improve. For example, if a stimulus bill is passed, it will immediately lead to a rapid improvement in stock market sentiment and, thus, lead to a rebound in BTC. Todaro’s notes:
“In recent weeks, we have seen stocks drop and investors make themselves more risk-free due to a lack of ongoing incentives for companies, political instability associated with potentially controversial options, and the risk of higher COVID-19 cases in the fall and winter. … If the three mentioned risks increase, We will see more correction; but if progress is made on the COVID-19 vaccine / treatment and additional financial incentives are introduced, then this amendment will likely be the worst ever for some time to come. ”
The current market dynamics of Bitcoin are very different from previous cycles because it is based on the traditional financial market. Investors’ public perception of different asset classes is changing simultaneously due to the economic impact of the epidemic. Strategists aren’t sure if the recent emergence of COVID-19 cases could lead to more restrictions and barriers in Europe and the US, but Wall Street supports another potential decline. “It must have changed to make the investors very anxious,” Sam Stovall, CFRA’s chief marketing strategist, told CNBC.
The short-term argument for Bitcoin would be a quick re-examination of the $ 11,100 resistance level. Bitcoin only tested its resistance zone once after the September 2 correction. The resistance will weaken if BTC continues to struggle with a re-test. For this to happen, it is necessary to improve the mood of the investors in the various markets, including the gold and equity markets.
Bitcoin has a potential catalyst that could trigger a rally despite the weakness in traditional markets. In recent days, the value of the decentralized financial tokens has decreased. According to Cointelegraph, even DeFi giant Yearn.finance and UNI Uniswap’s YFI tokens were down 46% and 48%, respectively, in one week. The drop came when BTC rose from $ 10,300 to $ 11,100, leading analysts to believe that DeFi’s token earnings withdrawal was behind BTC’s buying needs.
The profit cycle from DeFi tokens to Bitcoin does not necessarily mean that the market will decline. But Todaro indicated that investors can convert their money into more reliable and stable assets like Bitcoin. If the trend continues, there is a chance that BTC will see a new profit spike as the DeFi market corrects. Todaro explained:
“Capital has moved from lower and higher market prices to a greater extent than Bitcoin. I don’t think this necessarily indicates a recovery in the markets, but rather a larger increase in premium betas higher than Bitcoin, which was more stable.”
Separating Bitcoins from US stocks?
Dennis Vinokurov, head of research at Bequant, cryptocurrency brokerage and exchange, told Cointelegraph that the recent drop in BTC was driven by political factors and the pandemic. He cited the death of US Supreme Court Justice Ruth Bader Ginsburg as a major factor. He stressed that the level of uncertainty in the US markets regarding the elections is already high, but that investors are now more concerned:
“Digital assets have tumbled across the board, along with equity markets and even safe havens like gold, as concerns about the upcoming US election have taken an interesting turn.