Bitcoin Talking Points:
- Bitcoin price increased by over 11% from its previous session close (Sunday) hitting a near-two year high
- Reports that institutions are accelerating adoption of digital currencies is increasing demand for bitcoin
- Large futures speculators are suffering with a net short position while retail has held net long
At the opening of trade Monday, Bitcoin extended a rally temporarily sidetracked over the weekend. The decentralized benchmark cryptocurrency trades over the weekend with a gap and rally through Saturday which slowed Sunday around $7,000. This move has furthered the break above the 200-day moving average at the start of April and find the 20-day, 50-day and 100-day averages all advancing.
On a weekly basis, we can see Bitcoin prices are making one of the most convincing moves to mount a lasting reversal that we have seen since the peak around the end of 2017 and beginning of 2018 threw the market into existential uncertainty. The basing is not turning into meaningful gains with the market currently trading at its highest level since July 2018.
This progress is a boon for some and burden for others. For large speculative futures traders – measured by the Commitments of Traders (COT) report reveals a large net short position. That is putting them in a situation where they may need to close out their positions. With the market advancing over 100 percent through the course of 2019 thus far, the fight is proving costly for this group.
In contrast, retail CFD traders have kept a persistent net long exposure on the market – likely reflecting their belief that the market will take hold. Below, the IG Client Sentiment positioning report shows retail traders have only added to their long interest with the most recent jump – an unusual effort for a group that routinely fights the prevailing trend.
On the fundamental side, there are few things that may be contributing to the aura of Bitcoin – though it is difficult to ascertain certainty with such a market. One possible outlet may be the mention of global adoption increasing in concert with a week-long blockchain event in New York. A survey of crypto adoption has fueled speculative interest as has the suggestion that the ICE’s own effort will launch its own future contracts on bitcoin in the coming months.
Further, Fidelity Investments recently announced that in the coming weeks, they will be purchasing and selling bitcoins for their institutional clients. Large companies such as eBay and Whole Foods have stated that they will begin to accept payments being made in crypto currency. With the increase in institutional demand for bitcoin, this may solidify the perceived ‘legitimacy’ amongst a crowd not comfortable with the emerging market.
Another fact that should be watched for sentiment are the headlines of trade wars – particularly between the US and China. With the countries ratcheting up the pressure on each other, concerns over the tit-for-tat financial escalations between the two countries can push more capital towards non-traditional means of financial transaction.
Written by: Nancy Pakbaz