Bitcoin Decouples From Gold as it Glimpses a New Paradigm
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Over the years, bitcoin has gone through various narratives, all of which have accompanied its journey and some being more prevalent than others. While these narratives have evolved, one that stands out is the digital gold narrative; but this too seems under threat now.
Let’s dig in.
Bitcoin decoupling from gold?
Since October, bitcoin has been trading within a different trajectory to gold.
As pointed out by Crypto Tyrion on Twitter, bitcoin and gold charts have decoupled, which could have several implications on the development of bitcoin as it inches closer towards realising this new paradigm at the turn of the decade.
On the one hand, bitcoin is a store of value that acts as an inflationary hedge to never-seen-before amounts of money printing by central banks. For millennia, gold held this title strongly and at a market capitalisation of over $10 trillion, this ancient market and its resilience literally defines arguments from historical precedent (to an extent).
On the other hand, bitcoin has worn several hats since its inception in 2009, in large part due to the fact that it is still a very young asset. Indeed, bitcoin can be whatever you want it to be, and this is evidenced not only by its fundamentally nuanced characteristics (completely digital, fully decentralised, censorship-resistant, programmable, zero-third party risk, easy to transfer, non-debaseable, etc.), but also by the narratives that developed as a consequence.
One great chart that illustrates this point is the one compiled by Hasu and Nic Carter back in 2018. Per their opening words, “perhaps the most enduring source of conflict within the bitcoin community derives from incompatible visions of what bitcoin is and should become.”
Since then, the fierce debate within bitcoin has subsided, and with it, bitcoin hard-forks have also dwindled in popularity. The conversation has moved beyond hard-forks and is now entering a new phase characterised by a mixture of market disbelief, realisation, and acceptance of bitcoin (in that order).
Perhaps it is this slow grind of mass realisation that is driving bitcoin’s decoupling from gold.
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Bitcoin finally breaks the parabola
After weeks of persistent parabolic moves, bitcoin finally slammed the breaks and changed gears, falling to $16,400 before finding a temporary floor.
Since then, bitcoin has recovered some losses, reaching $18,700 before pausing once again at the time of writing.
Clearly, bullish momentum has subsided, somewhat given that the parabola is no more.
The 13-candle winning streak on the 3-day chart speaks to the fact that bulls were over-extended and exhausted.
Hash ribbon flashes another buy signal
Meanwhile, the bitcoin hash ribbon indicator has flashed another buy signal, indicating that this pull-back might be short lived.
This signal indicates that ‘miner capitulation’ season is largely over, and that bitcoin is preparing for the next major move.
The parameters for the above chart have been slightly modified in order to be more sensitive to incoming signals (i.e. the default settings haven’t triggered a buy signal yet). However, these settings have no bearing on the indicator’s accuracy as all prior signals line-up with the chart’s default settings.
In any case, prior capitulation and subsequent buy signals were accompanied by a period of relative accumulation before a continued grind higher. Given the accuracy of this signal, it’s not unreasonable to treat price-action within the blue-range as an area to accumulate.
Granted, the spread for this range might seem a bit excessive in comparison to previous moves, but that’s only because price discovery hasn’t ventured into the $30,000 plus region yet.
After black Thursday in March, the hash-ribbon capitulation/buy signal ranged within a $2396 range, representing a 50% spread from the lows within that time-frame. The same could be argued for bitcoin’s current price-action.
This scenario assumes bitcoin will be at all time highs by 2021, which is extremely likely in my estimation.
Double bottom scenario?
That being said, the 1-hour chart paints an uncertain picture in the short term — one which was delineated a few hours ago on the telegram channel (which you should be in).
Bitcoin has been climbing steadily into overhead resistance along an upwards sloping RSI trend. At the same time, volume has decreased across multiple exchanges during the up-move.
Typically, price appreciation is more certain when accompanied by increasing volumes, as this serves to buttress bullish price-action when low time frame corrections take place. Volume confirms the move, as it suggests that the market relatively agrees on the direction and has more skin in the game than if volumes were lower.
At the same time, the RSI has slipped into overbought territory, while also developing an over-head bearish divergence.
This could signal that bitcoin’s intra-day upside potential is losing steam at the very least.
However, should bitcoin form a ‘double bottom’ structure without breaking the 20-daily EMA (currently at $17,393), then another attempt at the all time high should be anticipated in the coming week or two.
On the flip side, if price closes below the 20-daily EMA, then a strong bearish trend towards the 20-weekly EMA ($13,616) becomes probable.
Will the bulls show up, or will the bears reign?
Either way, bitcoin Spartans have been to Hades and back too many times to care about weak plebeian hands. Bitcoin will break all time highs in the coming months and there’s nothing anyone can do about it.
Catch you next time.
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