(DAILY NOTION): Bitcoin Bulls Make History on Tesla's Announcement, How High Can It Go?

09 Feb 2021, 10:29 · Views 427

Source: Yahoo Finance

On Feb 8, the BTC/USD bulls surged ahead to make history and reaching a record high. Looking at the chart above, the price moved sharply upwards at nearly 90° from $39,220.08 to $42,581.36, before continuing its upwards journey. At the time of writing, the price is at $46,373.69.

The main reason behind the bulls' power to reach historic heights is news that Tesla has bought $1.5 billion worth of Bitcoin. It has also announced that it will soon begin accepting bitcoin as a mode of payment. CoinDesk reported that after the Tesla announcement, large cryptocurrency exchanges such as Coinbase and Kraken encountered technical difficulties due to a surge in trading activity. CoinDesk also highlights other institutional investors such as Paul Tudor Jones II and Bill Miller who have invested in Bitcoin, as a potential hedge against inflation. Will Apple be next?

It is now estimated that Bitcoin has a market valuation of $818 billion, only $5 billion short of Tesla’s $823 billion. It has overtaken Facebook, which has a market valuation of $757 billion. Stefan George, the co-founder, and chief technology officer of prediction-market platform Gnosis believe that this heralds a new age where the cryptocurrency ecosystem will be integrated into the mainstream business.

The important question now is: what lies ahead for the flagship cryptocurrency? While only time can give a definite answer to that, for now, let’s take a look at some BTC/USD’s technical levels. Bullish trends are clearly evidenced, as demonstrated by the fact the BTC/USD is trading above its 50-day Moving Average (indicated by the purple line). The Moving Average Convergence Divergence (MACD) also points towards a bullish reversal.

Not surprisingly, the Relative Strength Index stands at 65, not far from an overbought condition, which reflects a strong FOMO (fear of missing out sentiment) in the market. Trading volumes are also showing strong upwards spike. The increasing sense of FOMO could make BTC/USD resilient against any major market movers for now. The FX Street team believes that should there be any pullback, a key support level lies at $41, 987, which a previous record achieved in January. Meanwhile, on the upside, a key resistance level is at $50,000.

With this new milestone for the digital gold, it appears that confidence in the traditional markets as we know it is clearly waning. As President Biden attempts to push through his proposed $1.9 trillion stimulus package to salvage the economy, one must bear in mind that the U.S. is already close to $27 trillion in debt. This situation is akin to a game of Jenga, and if one piece falls from a carefully arranged stack, how much damage will it cause?

With this in mind, it appears that traders are already searching for a brand-new world, and at this moment of time, Bitcoin is the king of this new world. Let's watch how high can Bitcoin reach.

BTC/USD (as of Feb 9, 2021, 9.55 a.m., GMT +8) - $46,373.69.

FOLLOWME BTC/USD User Sentiment (as of Feb 9, 2021 at 10.25 a.m.)

Short – 76.41%

Long – 23.59%

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Any individual who followed Matt Damon’s advice that “fortune favors the brave” during the Super Bowl and invested $1,000 in the crypto markets have seen staggering losses, with the value of those assets dropping more than 60 %. This small slice of activity in the crypto markets demonstrates two major issues with this new asset class: its historical volatility and a lack of education about these assets among most would-be investors. Given that, as well as a cautionary regulatory environment, it’s clear that at this time, crypto has no place in defined-contribution plan lineups. This hasn’t stopped some DC plan administrators from soon making digital assets available to plan participants, if the plan sponsor decides to make this feature available. Read: This is why bitcoin won’t ‘diversify’ your 401(k) Defined-contribution plan sponsors will likely keep a close eye on these moves to make crypto more accessible to DC plan participants. For now though, we at Mercer do not view cryptocurrency or crypto-related assets as suitable investment options in a defined-contribution plan. Here are three key reasons why: 1. Volatility Proponents of cryptocurrencies point out that Bitcoin last year became the highest performing asset class of the decade, with an annualized return of 230 percent, when its price reached $60,000. But since then, its price has dropped precipitously, sitting at around $21,500 as of July 27. Of course, much of the stock market has entered bear market territory, bringing crypto along with it. But volatility is par for the course in crypto. According to a Mercer analysis, the annualized standard deviation of monthly returns of Bitcoin from 2015 to 2020 was approximately 80 percent, at least four times the volatility of publicly traded equities. Many experienced crypto investors may understand that these new markets reach new highs then crash in cycles, but it’s likely that most defined-contribution plan participants do not. Most participants don’t have the appetite for such high volatility—after all, as the primary vehicle that people rely on for their retirements, DC plans generally avoid making highly volatile asset classes available to participants on a stand-alone basis. Read: Why target-date funds may be sabotaging your retirement 2. Lack of education Given the amount of mainstream coverage around crypto, it can be assumed that these assets have become mainstream. However, only 16% of Americans said last year that they have invested in them. Based on Mercer’s work with some of the largest defined-contribution plan administrators, much is still to be done to educate plan participants on building a portfolio with crypto assets. This is vital, as learning about these markets can be confusing and time-consuming—a sobering fact in the face of Americans’ lack of financial literacy and their desire for professionals to help them plan for retirement. Learn how to shake up your financial routine at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. Join Carrie Schwab, president of the Charles Schwab Foundation. 3. The regulatory environment Although many in the crypto industry cheered when President Joe Biden signed an executive order in March instructing federal agencies to study and report on digital assets, there are plenty of reasons to be concerned that the regulatory environment around crypto may create more confusion in the markets. The day after the president’s order, the Department of Labor warned 401(k) plans to “exercise extreme care” about including crypto in portfolios. The agency wrote, “At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.” The department cited crypto’s speculative and volatile nature as well as the difficulty to understand them as factors in its warning. (There is pending litigation against the DOL seeking to vacate this guidance, stating that where “assets may be invested should not be subject to the arbitrary whims of an agency that has no such authority.”)

Given the rapid decline of crypto markets, many believe regulators may soon place restrictions on the market. Hence, it’s prudent for defined-contribution plan sponsors to take a data-driven approach to including these assets in DC plan menus, despite a likely small minority of participants who may be requesting them. The crypto markets are constantly evolving, so it’s possible that the factors outlined above may be mitigated. But until then, we at Mercer feel that crypto does not belong in retirement accounts. Holly Verdeyen is partner and U.S. Defined Contribution Leader at asset management firm Mercer. Click here to see Mercer’s important notices.

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