Over the last month, crypto news headlines from most of the major financial media outlets have focused on market negatives when discussing recent trends in digital currencies. Bitcoin valuations, in particular, have been a topic of intense scrutiny ever since government officials in China began to initiate crackdowns on business operations involving the use of cryptocurrency.
Of course, there are obvious reasons for the negativity among active traders during this period of time. Bitcoin has lost about $3,000 in its market value (relative to the U.S. dollar) and these declines follow a series of bullish trend advancements that previously sent prices back into five-figure territory.
Interestingly, those gains were also fueled by changing regulatory activities in China, where President Xi Jinping recently made public comments suggesting the country plans to capitalize on the emerging opportunities offered by blockchain technology. These comments followed detailed reports that the People’s Bank of China is developing a cryptocurrency that will operate using a two-tier system backed by a 1:1 ratio of fiat reserves.
For those with active strategies in place, this type of activity might continue to complicate the trading landscape, and this could occur for a variety of different reasons. At the very least, China’s inability to send a consistent message with regard to its acceptance of digital currencies is a factor that has the potential to generate new fundamental uncertainties and put further downside pressure on the market’s bitcoin valuations.
For these reasons, technical chart analysis can provide traders with added strategic tools that help protect against the crypto market’s recent volatility spikes. More specifically, correlation comparisons have the ability to provide traders with important information delineating trend effects that have recently become visible in several different asset classes.
Since the middle of December 2018, market valuations in BTC/USD have risen by more than 140%. Since the middle of August 2018, market valuations in GOLD/USD have risen by more than 25%. This trend activity falls in line with my cryptocurrency price projections outlined in August. In both cases, strength in the U.S. dollar preceded each of these rallies and the market’s bullish moves have been substantial —and those gains have seen strong associations with downside moves in equities markets.
In actuality, performance measurements assessing these trend similarities between gold and bitcoin fail to include price peaks in the bullish movements that unfolded during each of these periods. In percentage terms, it’s undeniable that there are striking market trends occurring at the moment, as the precious metals complex and the cryptocurrency complex have managed to post significant rallies at roughly the same time.
From a behavioral economics perspective, this is significant because it suggests that the future price trends of both asset classes may continue to work in conjunction with one another. In practice, what does this really mean for traders? Essentially, market environments characterized by stalling valuations in equities tend to have a supportive influence on BTC/USD and GOLD/USD valuations. Furthermore, these events tend to be most pronounced during periods that follow significant long-term gains in the U.S. dollar.
Of course, it can be difficult to speculate on what may occur in the future whenever we are dealing with an entirely new asset class. But it should be very interesting for traders to watch for future price gains in cryptocurrencies and to determine if the bullish trends act as a harbinger for potential rallies in precious metals (and vice versa).
Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.
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