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Crypto Market Analysis: 19th October 2020

The S&P 500 rose at the start of last week, shrugging off the tail end of the previous week, and remained at a solid level until Friday to finish the week on 3.482. Contrastingly, the European and UK equity markets struggled, seeing a dip on Thursday as markets digested the impending and increasing coronavirus lockdown restrictions.

Bitcoin made modest gains, whilst remaining steady as it sat above the $11,000 level. Many of the larger market cap altcoins performed well too, with some, such as Bitcoin Cash and Cardano, posting double-digit gains over seven days.

Bitcoin approaching 2019 levels – but the environment has evolved 

It is pleasing to see Bitcoin hit $11,000, especially given the weeks where it hung around the $10,000 range with minimal volatility. In the short term, $12,000 remains the next resistance level that I would look towards, but with an eye on the future, I would also be conscious of the $14,000 level, which has historically been tough for bitcoin to break. The last high in June 2019 was the last time it approached that level.

However, the current market backdrop is markedly different than it was last year. In my view, the fundamentals are stronger than in June 2019. Combine positive on-chain metrics with an environment of continued monetary and fiscal stimulus (although time seems to be running out for another package now) and the potential for above 2% inflation. Should bitcoin break through the next two resistance levels, then it would seem much more likely to manage a sustained bull run instead of dropping back down.

Whilst there has already been expansion of bitcoin’s investor demographic (more on firms such as Grayscale later), any prominent mainstream media coverage of the cryptoasset hitting all-time highs will no doubt drive yet further investment. Retail investors may also recognise the prominence of institutional players in the space – plus the seemingly lower levels of volatility now than in 2019  – and take to bitcoin in levels similar to the famous bull run of 2017. Fidelity highlighted some of the benefits that bitcoin can bring to investment portfolios, such as its lack of correlation to other investment assets. The report also highlighted that should an increase in institutional investment occur, the market cap of bitcoin could increase by hundreds of billions of dollars.

Altcoins snapping at bitcoin’s heels 

Ethereum followed in bitcoin’s tracks with a strong week, hitting $393 on Monday. In fact, it carried a Pearson Correlation Coefficient of 0.92 over the past week. Despite this high recording, the longer-term figure has been steadily decreasing, according to Coinmetrics.io.

It seems that investors are also accumulating, or at least holding, a lot of ethereum. CoinTelegraph reported that 60% of all ether has remained stationary for the past 12 months. Investors are evidently recognising the moves that the foundation is making towards Ethereum 2.0 and are cognisant of the opportunity that this presents. They, along with bitcoin investors, seem content to hodl.

As I discussed in my recent article for CoinRivet, altcoins are becoming increasingly important in the cryptasset sector, perhaps even threatening the dominance that Bitcoin holds over market capitalisation.

Aussies don’t see a necessity for a CBDC

Last week, an Australian Central Bank official said that they don’t see a public policy case for a digital AUD. Fair enough. But what happens when all the other major economies have their own CBDCs and Australia doesn’t? The Bank of England is part of a task force designed to introduce one, Christine Lagarde of the ECB has already indicated her inclination towards one, and China is well on its own way to implementing its digital yuan. The Chinese CBDC has already processed 3.13 million transactions over its pilot program, which ran from April to August.

This calls into question the interoperability of CBDCs and how they can communicate with each other. Most of the above central banks are using different organisations to develop their digital currencies, and so it’s vital that a framework exists to ensure that they are all compatible. Time will tell how these will work, and one can only hope that extensive testing prior to launch will smooth out any potential hiccups.

This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as a reliable indicator of future results. 

All contents within this report are for informational purposes only and does not constitute financial advice. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.

Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.


Image by Arek Socha from Pixabay