Crypto markets have seen new trends emerge during the early parts of 2020, as bullish traders have pushed valuations enough to reach above prior resistance levels and non-economic events seem to be playing a role in the market’s perception of cryptocurrency as an early-stage monetary asset.
Bitcoin traders have convincingly forced valuations above the $10,000 level in recent sessions and many of these moves have been fueled by risk aversion in response to China’s ongoing health concerns.
For investors, these types of news events are key whenever we are making future determinations about how cryptocurrencies are likely to behave during stock market declines or times of geopolitical uncertainty. Unfortunately, many of these trends are sending signals that, to a large extent, conflict with one another.
In 2019, crypto benchmark BTC/USD gained by 115% in what most investors would consider to be a year that was particularly bullish for equities investments. Of course, strength in those areas was largely undeniable as the S&P 500 gained 28.9% for the period, while the Dow Jones Industrials gained 22.3%, and the NASDAQ Composite gained 35.2%. For both the NASDAQ and the S&P 500, these gains marked the best annual performances in six years.
However, it’s also clear that none of these gains hold a candle to returns generated by the market’s buy-and-hold crypto investors during the same periods. For these reasons, sentiment-based traders must be finding recent scenarios to be somewhat unpredictable (and even confusing) given the fact that crypto trends have remained favorable in both “risk-on” and “risk-off” environments.
As a result, traders may continue to find technical analysis strategies to be particularly useful in terms of the ways they can help to filter the external noise and focus more directly on what is actually happening in the market. Financial news headlines like to focus on psychological round numbers (i.e. the $10,000 valuation in BTC/USD) but these types of classifications tend to have little effect on the daily activities of active traders.
In the move upward through the $10,000 mark, the BTC/USD crypto pair established an important foothold near $8,250. This is a price zone that looks likely to remain intact, given the series of higher highs that has already been established this year. If this turns out to be the case, it would not be surprising to see BTC/USD valuations stabilize in five-digit territory for the majority of this year.
Fundamentally, it’s difficult to imagine which type of market environment might be required in order to initiate a significant downside move in BTC/USD. Cryptos have actually held up remarkably well in cases where the S&P 500 has rallied but they have also managed to move higher when geopolitical uncertainties have sapped the market’s appetite for risk. Overall, this outlook supports the bullish side of the argument for investors willing to buy on dips.
While technical support levels continue moving higher, the cryptocurrency space is in a strong position to outperform stock markets once again this year. Stock valuations remain well above their historical averages as questions about the market’s potential for future earnings growth remain largely unanswered.
This suggests that investors might look for alternatives if bearish market trends become visible in the equities space and one of the primary beneficiaries of this development could be the cryptocurrency complex for the majority of 2020.
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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