Bulls & Bears : Digital Assets Coming of Age - Mine Digital
March 12, 2020
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Bulls & Bears : Digital Assets Coming of Age

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Thomas Kuhn, CFA

Operations and Trading Manager

We build a case to bid Bitcoin at the current levels

First things first, we’ve given our newsletter a name; Bulls & Bears, and look forward to continuing to explore ideas with our readers.

It’s been a huge couple of weeks in markets as the world adjusts to the reality of the coronavirus outbreak, now labelled a pandemic by the WHO. The S&P 500 is down around 20 %, putting the last year of gains out of the money. Fixed interest has also been volatile and the problem has shifted from being an Economic one to a Financial System problem.

Contributing to that has been the nuclear weapon of the crash in the oil price, taking around $600 million cash / day of liquidity away from paying debt in the US and putting US Shale oil producers below cost of production. It is a direct attack on a policy of the Trump administration to create US energy independence as a strategic priority – a strategy priority that has likely influenced Australia’s attitude towards coal.

As the problem shifts into being one of how the financial system works and with no nuclear option chosen by the Trump administration so far (expected yesterday, and rumored to be held up by Democrats) there is a risk of a type of contagion far worse than anything threatened by WuFlu. As positions, funds or firms get liquidated it thins the herd, but when this goes on to cause fundamental problems in how the system operates there is a larger threat.

In a general state of fear and paranoia, validated by record breaking moves in assets that threaten a break-down of the financial-system; this is where expanding monetary supply and fiscal stimulus can successfully intervene to oil the gears of commerce. Are they reluctant to do anything after a decade of intervening unnecessarily? Does this mean that policy had been validated by higher asset prices as proof that they were working, are they now scared of applying the policy into falling asset prices in case they ‘fail’? Does the financial system risk an LTCM type event in how this has been applied, where everything is good until it isn’t, and the effects are massive reflexive outcomes?

Bitcoin

High: $7,901 Low: $7,606 Last: $7,942

Bitcoin has been bid overnight after making low at 7600. It’s been bought back enthusiastically at current prices a few times and is holding up well after early liquidations in the asset during the current risk-off events.

There’s been strong volume in Bitcoin

The upcoming period is going to be very important for digital assets as they are given an opportunity to show exactly what they can do as traditional financial services are disrupted with practical structural problems.

During the problems in the traditional markets overnight, as they look like they may become structural problems, and with a declining Gold price, Bitcoin has been bid through important levels.

Bitcoin/USD 15 Min Chart

Showing the rounding bottom here, we can see how the asset has recently bid out of the negative narrative (through the down-trend), with a couple of big days of buying that covers the rounding bottom.

With the fear and greed levels at extreme fear

Although we were concerned about the prospects of digital assets in the wider market selloff, the prospects of a bid are strong here.

Bitcoin / USD Daily Chart

The asset is sitting on the long-term trend-line at the moment where unless it’s being let go to ~$5000, it’s at the decision-making point.

It is worth noting that USDT is doing record volumes at the moment, with good volume in the last 24 hours ($47 billion USD).

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