Allow me to start on this topic by looking at the technical analysis first. Bitcoin price has been consolidating for the past few days and this coiling of the price action made several investors anxious. This is because a period of consolidation is usually followed by a sharp move to the upside or to the downside. Given that the price of Bitcoin was trading below the 50 day moving average, one thing was pretty clear that bears are in control of the price. Therefore, I was expecting this consolidation to break to the downside.
The more important question is what is next for the price action and if this downward trend is going to continue? From a technical analysis perspective we should see this bounce from or near its 100 day moving average which is sitting at $9,525.
Bitcoin Not Acting As Safe Haven
Looking through the fundamental lens there is something new: the relationship between Bitcoin and the safe Haven trade has broken. The reason that I’m saying this is that inverted bond yield curves have stroked recession fears and this led to a sell-off in the equity markets. The fact that gold price is sitting at its six years high says it all, and this momentum for the gold price is still skewed to the outside.
Previously, we have seen a strong correlation between the price action of gold and Bitcoin. In a slowing growth environment where the biggest economy of the eurozone, Germany is teetering with recession, and the biggest economy of the globe, the U.S. is also facing major setbacks due to the ongoing trade war along with a strong possibility of a feeble GDP reading in Q 4, we should see a flight to safe haven trade.
Institutions Prefer Bond Yields Over Bitcoin
The German 30 -year bond yield dropped below -0.70 percent for the first time yesterday and this is only because investors are thinking that grab them now before they go even lower . The collapse in bond yields is purely due to the popularity of these assets as safe haven.
The fact is that we are just not seeing this in Bitcoin and this makes the argument stronger that the institutions are still not ready to bet big on this new asset class. The problem isn’t with bitcoin’s volatility; the problem is there is no regulatory embossed stamp. In all essence, we don’t necessarily need this particular stamp. We just need a wider acceptance, and this is happening, but unfortunately, not at a faster pace.
Negative Bond Yields Are Ticking Time Bomb
Having said this, I still believe that Bitcoin is the next ultimate safe haven asset after gold because the entire financial system needs re-engineering. Since the financial crisis, central banks around the globe looked at innovative ways to spur growth and it helped the world economy in a short term, but now, investors have lost their trust in this mechanism.
Just look at the bond yields of Italy and Germany, and see for yourself if they make sense? Obviously, no. The underlying issue is the imbalance of the financial engineering system in the Eurozone.
As for the other side of the Atlantic, the Fed is under pressure to do more with their monetary policy tool- cut interest rates more. The Fed is aware of the risk of cutting interest rates outweighs its benefit, but the pressure is on. President Trump has already pointed out to those countries where one actually gets paid to borrow money, a dire condition from economics’ perspective. The Fed clearly knows this is a ticking time bomb, hence they are hesitating to jump in this territory. The question is for long they can resist?
To conclude, I believe that institutional investors aren’t paying attention to this ticking time bomb and for them the only safe haven is gold and bond yields. The day that these institutions understands that government debts are as poisonous as nuclear waste, we could see bitcoin stamping its credential as a safe haven asset for eternity among institutions.