Cryptocurrencies traded higher on Friday after a volatile week. Bitcoin was holding above $33,000 support at press time and is roughly flat for the week. Technical charts suggest buyers will remain active above $30,000, although upside momentum is starting to slow heading into the weekend.
“The possibility of price action dropping into the mid-$20,000 range is alive, but traders looking for a retest of previous all-time highs will likely be disappointed,” Sean Rooney, head of research at crypto asset manager Valkyrie Investments, wrote in an email to CoinDesk.
- S&P 500: 4369.55, +1.13%
- Gold: $1808.4, +0.31%
- 10-year Treasury yield closed at 1.358%, compared with 1.297% on Thursday
“The May price drop was dramatic, whereas the on-chain reaccumulation of the bitcoin sold in that downturn into longer-term holders has occurred throughout eight weeks of sideways price action,” Rooney wrote. “This sets up well for an end-of-summer rally heading into the fourth quarter.”
Bitcoin shorts pile up
More than 5,000 bitcoin shorts were added on the Bitfinex exchange on Thursday. “When shorts close their positions, they do so by going long to offset their short exposure,” tweeted Delphi Digital.
The recent buildup in shorts is still below peak levels in June, which suggests pessimism could continue as bitcoin remains in an intermediate-term downtrend that began in April.
Eventually, extreme pessimism could lead to a short squeeze as buyers respond to oversold conditions, fueling a price rally.
Ruffer sold bitcoin on signs of froth
Ruffer Investments, a U.K. investment manager, booked a $1.1 billion profit from a bitcoin investment in five months. “So, what’s changed? The price,” Duncan MacInnes, investment director at Ruffer, wrote in a Friday blog post.
“Last November, we gained exposure to bitcoin,” MacInnes wrote. “We viewed it as an option on an emerging store of value with a highly skewed and attractive risk/reward profile.”
However, retail speculation and peak liquidity indicated frothy market conditions earlier this year, which prompted Ruffer to sell all of its bitcoin exposure in April.
Bitcoin vs. commodities
In recent weeks, bitcoin’s correlation with the S&P 500 has started to rise, while the correlation with commodities continues to fall. That divergence could make bitcoin attractive for investors looking to diversify exposure across equities, commodities and cryptocurrencies.
Mike McGlone, commodity strategist at Bloomberg Intelligence, expects bitcoin to outperform Brent crude oil this year.
“The relative discount in the bitcoin price vs. the premium in crude oil may show that technicals and fundamentals are aligned for resuming the upward trajectory in the ratio,” McGlone wrote in a Thursday report.
“Akin to similar conditions at the end of 2016, we see the bitcoin-to-crude ratio well poised to resume its uptrend, especially if a new low in relative bitcoin volatility at the end of 2020 is a guide.”
Traders sells “strangles” as bitcoin goes quiet
Though bitcoin has gone comatose in a narrow range above $30,000, less than half the all-time high reached just two months ago, some options traders are busy as ever, taking relatively high-risk strategies to profit from the cryptocurrency’s continued price consolidation.
One of those strategies involves putting on “short strangles,” essentially a bet that bitcoin’s price won’t break out anytime soon.
“Our favorite trade continues to be short BTC strangles within the $30,000 to $40,000 range,” Singapore-based QCP Capital said in a Telegram post on June 30. “With psychological…