See important Research Disclaimer.
Last week could have been a historic one for Bitcoin, with the Winklevoss brothers, of Facebook fame, finally getting a judgement over whether their Bitcoin ETF would be approved for the market. Ultimately the Securities and Exchange Commission (SEC) decided against the proposal, with proponents of the world’s largest cryptocurrency knocked back over what would have been a huge boost to the longevity and demand for Bitcoin. However, despite the initial disappointment driving a 27% fall in BTC/USD, we have seen price move up to less than 7% short of all-time highs. This proves the incredible resilience of the Bitcoin, which has recently overtaken the price of gold for the first time. The question is whether this ETF disappointment will have a long-lasting effect on the market, or whether we will see the price continue going from strength to strength.
On the issue of the ETF, there is no guarantee this will not happen in the future. So much so that we actually already have two other potential Bitcoin ETFs in the pipeline. However, with the SEC’s gripes revolving around the limited supply, lack of regulation/oversight, and volatility, it is unlikely we will see one approved soon.
When looking at the main source of demand, you need to look no further than China, where many appear to be utilising it to get around capital controls, which aim to stop too much money being moved out of the country. Given that we are seeing the Chinese backing of Bitcoin help support prices, it is worth being wary of the impact any regulation could have upon the cryptocurrency.
Interestingly, we heard from People’s Bank of China (PBoC) director, Zhou Xuedong, who has been looking into the currency, who believes there is a need to regulate platforms which will fake volumes to encourage future investment, but, ultimately it is clear he sees a value in them. The use of Bitcoins for money laundering and to escape FX controls was also mentioned, and regulation seemed to be a crucial factor. What form that regulation will take remains to be seen.
There is no doubt there are risks associated with Bitcoin, yet the naturally limited supply that comes with the mining process means the price could continue to rise for some time. Much like gold, people are seeking alternate safe havens which will perform at times of political or economic uncertainty. There are certainly actors that will constantly push for Bitcoin to develop in different ways, and given the interest banks have shown in blockchain technology, there is no reason to believe the use cases will not expand as time goes on.
From a charting perspective, the recovery following Friday’s ETF rejection has been impressive, with a break through $1331.55 required to show that the uptrend remains in play. That being said, the fact that we did not see the price break below the most recent swing low ($941.82) points towards a continuation of the uptrend. Sharp pullbacks appear to be a relatively regular occurrence, with four substantial pullbacks occurring in the past 18 months. However, they never broke the previous swing low around trendline support. That gives us confidence that even if we get another sharp move lower, it should not break below $977.50. Until we see that occur, it looks like Bitcoin is set to continue its uptrend.