After a severe “head fake”, Bitcoin has once again climbed from the depths of lowly depression, confounded every analyst alive and their first cousin, and risen like a rocket, if 39% in one day satisfies that definition. Yes, the “King of Resiliency” sits upon its throne once more. Bitcoin had lost 10% in one day, a sign that surely all was lost, but then in one heroic stroke, it rose from $7,400, kissed $10,300, and then settled in around the $9,200 level, as if it were just another fine day in the neighborhood.
But this storyline is not over. Bitcoin is on the rise again on Sunday, back at $9,500 with momentum to spare, or so it looks. Bitcoin is also in territory it has not seen in five weeks and just recorded its largest single-day gain since April. There is general consensus that the fireworks started because China, as per Chairman Xi, came out in favor of support for blockchain technology big time, claiming the country must position itself to be a leader in this innovative arena. Secondarily, speculators have lit up the derivatives market of late, a sign of possible price manipulation, as depicted by this daily chart:
The BTC price behavior appears a bit suspect on this chart provided by Coindesk. Bitcoin is seemingly caught between this declining channel since its yearly high at the end of June. The piece of the price behavior that is “suspect” has to do with the severity of the jerks down and then back up again. The pattern is emblematic of someone throwing their weight around, first to scare the market and loosen weak-handed investors, then to buy like crazy.
After the market ascends significantly, in this case, BTC blew past its 200-Day moving average at $8,820, it is time for profit taking, and then the cycle repeats once more. There is more evidence in that Bloomberg recently articulated how heavy derivatives trading is in Asia, where regulation is non-existent and leverage of up to “125X” is available. Such retail trading is forbidden in the U.S. Sid Shekhar, co-founder of London-based tracker TokenAnalyst, told Bloomberg:
That’s where the money is to be made in crypto. It’s the biggest casino ever.
At $5 billion to $10 billion a day, the amount of derivatives traded globally exceeds Bitcoin spot volume by 10 to 18 times, according to estimates from data trackers Skew and BitcoinTradeVolume.com. The volumes were about equal at the start of the year, through definitive figures for both are hard to come by from exchanges.
A small amount of capital goes a long way in this market, since the investor does not have to purchase the underlying asset, and liquidity is greater than in the spot market.
But what is happening in China? Per Coindesk, Xi Jinping, President of the People’s Republic of China and General Secretary of the Communist Party of China, told Political Bureau committee members on Thursday:
We must take the blockchain as an important breakthrough for independent innovation of core technologies. [We must] clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.
He also listed a number of areas that could benefit from the technology from financing businesses to mass transit and poverty alleviation, with additional applications in such personal development activities as education, employment, food, and medicinal safety. Within 24 hours, the Standing Committee of the 13th National People’s Congress in China passed legislation, effective January 1, 2020, to push forward the development of standards and regulations to guide use-cases for commercial cryptography technologies.
For now, only the Bitcoin “wick” has penetrated its overarching channel boundary. BTC needs to close above this line, before true confidence can be restored. If not, then get ready for this long-playing record to repeat itself over and over again.