1 September 2020

Can We Expect Another BTC Rally?

Last week, investors closely monitored two major events that could have impacted the trajectory of Bitcoin through the end of the year: the Federal Reserve’s measures to address inflation and the expiration of $272MM of Bitcoin futures. Trading remained muted as both buyers and sellers stayed within the current $11,200 – $11,600 support level. Investors are now looking at the start of September with the same question: Are we at the start of the next Bitcoin bull rally?

While Bitcoin eclipsed its 20-day exponential moving average (EMA) of $11,559 on Sunday, we can’t draw any conclusions yet that it is ready to test its next resistance level. Rather, we should look at how Bitcoin behaved when its fundamental showed almost a mirror image of its current state (2H 2017). During this time, Bitcoin benefited from a rally that pushed its price by ~700% in less than 6 months and led to influx of new investors into crypto in a similar way that gold-obsessed prospectors poured into California in droves. Ultimately this created a parabolic curve – illustrated by the purple line below – which are inherently unstable. The result was a swift market crash that left many investors deep in the red. Investors today should exhibit some caution (albeit cautious optimism).

So what does this mean today? Let’s analyze the charts and find out what they suggest. The below image shows the chart of BTC/USD on the 4-hour time frame.

From this time frame, Bitcoin broke the downward trend line on August 28, tested it on the next day and continued moving higher. This is a typical reversal pattern that results in the short-term reversal of the current trend and the beginning of a new trend. The price has reacted fairly well from the support and provided us with enough confirmation by moving higher for three consecutive days. Considering these factors, it would not be surprising to see the price hit its next resistance level of $12,200 and eventually break out if it supported by volume.

DeFi…the new BTC?

Since the start of 2020, DeFi has created an environment that an environment that is nothing short of a feeding frenzy. With DeFi tokens outperforming BTC over the last 9 months, investors are rapidly shifting towards popular tokens as a means of capturing gains in the wake of DeFi’s explosive growth. In this section, we’ll look at what investors and market participants have to say about the present state of DeFi and how can one approach this investing opportunity.

The growing investor fascination for DeFi is not solely tied to the earning opportunity from staking assets, but also the sector’s potential to provide decentralized access to crypto and legacy assets. Due to these fundamental reasons, investors are slowly increasing their weightage on this cryptocurrency and focussing on tokens that have the highest market cap.

Synthetix (SNX) is an example of a token that has made substantial gains in 2020. It hit an all-time ‘high’ of $7.32 on August 15 and has rallied more than 400% year-to-date. Recently, it also reached the $1 billion in value locked milestone. and currently trading at an all-time high.

At the same time, DeFi also set a new milestone as it locked in value in excess of $9 billion. As more money flows into DeFi projects, analysts become even more bullish as many are expecting new tokens to hit all-time highs by the end of September. Similar to our advice on Bitcoin above, it would be advisable to show caution against the euphoric style of investing that’s currently being deployed in the DeFi space. It would be expected to see some profit-booking and built-up of new “short” positions that could result in a short-term downtrend.

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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