Amid economic uncertainty both here in Australia and around the world, it’s important to flex your portfolio to be prepared whatever the future may bring. For some, that may involve buying Bitcoin.
However, before you decide whether to add Bitcoin to your portfolio, you should consider the following three factors:
Current macroeconomic environment
China is experiencing its biggest economic slowdown in three decades while the United States has been experiencing erratic price action and volatility in the securities markets and US consumer confidence is at sharp lows.
In Australia, the housing market has been hit on a national scale and the big four Australian national banks allegedly have major re-staffing plans.
In some cases, they have already started to cut jobs from their workforce due to “having to operate in a low growth environment”.
This bleak economic outlook is being reflected in the Australian Dollar, which has now been recording fresh daily and weekly lows since December last year.
Why are these grim pulses from the world’s markets important?
Because these macroeconomic indications are pivotal in creating the basis for one of the most perfect first-time scenarios for Bitcoin to thrive in.
If we measure Bitcoin’s agility through price action, it can be seen that the cryptocurrency is, indeed, thriving at the moment.
Bitcoin has never had a chance to test its market function as ‘digital gold’. This function will only have a chance to prove itself in the weakest of global economic conditions.
With a 60% return from between April 15th and May 15th of this year, Bitcoin is reflecting this real-world case.
Gold has historically been used for hundreds of years as a hedge against economic unrest and uncertainty which likely explains why its price is rising now as well.
Basic market behaviour
All markets have traders who bet on the probability of an asset price going up or down.
Traders come up with this probability using basic technical indicators that are based on past price action.
In regards to Bitcoin, I believe it is best measured using these 2 basic indicators:
- Support and Resistance
- Market cycle dynamics.
Firstly, on the daily, weekly and monthly time frames resistance barriers are being broken with strong power and stable support.
Secondly, for the majority of 2018 Bitcoin lost 80 percent of its value.
This market dynamic – experiencing a bear market and heavy devaluing – is what all markets must experience to maintain healthy market cycles.
From a trader’s technical standpoint Bitcoin is a bullish asset to trade at the present time.
Strong buying power is a clear indication of a rise in liquidity, which simply means more money coming is in.
Where is this money coming from?
Who knows. When Bitcoin experienced price action like this almost a year and a half ago, this price action was often referred to as “retail hysteria”.
If all of that retail money has been wiped out, this could mean institutional players are venturing in or dipping their toes in the market.
Bitcoin rallying off of a deep market correction in harsh global economic circumstances has never been seen like this before.
The perfect storm for Bitcoin is brewing and we can see it in the price action.