Cryptocurrencies remained under pressure this week, though newfound stability for bitcoin alleviated the risk of a new bearish breakdown. The leading digital currency has managed to hold above a critical long-term support line, which has had a stabilizing effect on the broader market.
In traditional markets, signs of progress on U.S.-China trade talks pushed stock prices to new monthly highs even as the partial government shutdown in Washington entered its fourth week. Corporate earnings have been mostly positive, helping Wall Street extend its recovery from a brutal fourth quarter.
Cryptocurrencies Lack Direction
Cryptocurrency prices turned green on Monday, overcoming a potentially devastating correction that appeared imminent last weekend. Bitcoin swung below $3,550 on several occasions ahead of Monday’s session, setting the stage for a deeper fall back toward December lows. As we reported earlier, a sustained fall below $3,550 would put bitcoin in “GTFO” territory.
In other news, Ethereum’s long-anticipated Constantinople hard fork was delayed this week after developers identified a critical security flaw in one of the proposed changes. Read more here.
The cryptocurrency market cap bottomed at $116.3 billion on Sunday before recovering closer to $125 billion on Monday. Crypto markets have been directionless ever since despite the presence of larger than normal volumes. Bitcoin’s daily trading volumes have surpassed $5 billion since Monday.
At the time of writing, the total cryptocurrency market was worth $121.5 billion, little changed compared to seven days ago. Trade volumes reached $16.7 billion, which is fairly consistent with the weekly average.
Bitcoin’s Accumulation Phase?
2019 is shaping up to be the year of accumulation for bitcoin, as long-term holders and new market entrants look to capitalize on more affordable prices. According to technical analyst Eric Thies, the next 12 months could mirror the trend observed in 2015, a year where many crypto holders bolstered their position following a protracted bear market. This view holds water regardless of whether you believe bitcoin has bottomed or not.
In less than 30 days, bitcoin and other cryptocurrencies will enter their longest bear market in history. As of Friday, the crypto bear market had stretched on for 392 days. The longest bear trend was observed back in 2014-15 at 420 days, according to Ran NeuNer of CNBC’s Cryptotrader.
The amount of bitcoin in circulation suggests more traders are entering the market. Whether they will be buyers or sellers is yet to be determined. As we recently noted, the supply of active bitcoin in the market has increased by 40% since last summer, with much of the influx occurring since October. Read more: Bitcoin Likely Headed Lower as Whales Activate Long-Dormant Accounts.
Trade War Winding Down?
The Wall Street Journal reported Thursday that the Trump administration is considering lifting tariffs on Chinese goods in an effort to broker a new trade agreement with Beijing. The speculation was a welcome sign for investors who were growing more concerned with the backlash against Huawei and its potential impact on a trade deal. Read: Why the Huawei Scandal Will Reignite the US-China Trade War.
U.S. and Chinese trade delegations made important progress in their first round of talks in Beijing earlier this month. China has reportedly agreed to purchase more U.S. agriculture and energy commodities as well as open up its domestic market to American companies. Talks are expected to heat up over the next six weeks ahead of a self-imposed deadline in March. That’s when the 90-day truce agreed to by President Trump and China’s Xi Jinping is scheduled to end.
Stock Markets in Recovery Mode
Wall Street and global stocks have risen sharply this week, as a combination of trade optimism and upbeat corporate earnings lifted investor sentiment. U.S. stock markets have recovered more than 11% since Christmas Eve, when they plunged to their lowest levels in over a year.
Strong earnings from Bank of America Corp (BAC) and Goldman Sachs Inc. (GS) set the tone early this week. Both banks beat on profit forecasts, with Goldman shattering both top- and bottom-line estimates.
The CBOE Volatility Index, also known as the VIX, is currently trading at half of its December peak. This not only puts it below the long-term average, it signals renewed optimism in the stock market. The VIX trades in the opposite direction of the S&P 500 Index roughly three-quarters of the time.
The Week Ahead
Corporate earnings will dominate the headlines next week, as several Dow blue chips and S&P large-cap stocks report fourth quarter results. New proposals to end the U.S. government shutdown are also expected next week. The shutdown, now in its 28th day, is the longest in U.S. history.
In cryptocurrencies, all eyes will be on key technical levels. A lack of trading catalysts has kept markets subdued for the past four days. It remains to be seen whether this will alleviate bearish pressure or invite new sellers back into the fold.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.