OSL Daily Update - March 24, 2020 

$BTC 24 Hour High $6,596
$BTC 24 Hour Low $5,785
$BTC +11.7%

Fear of the potential economic effects caused by the now world coronavirus pandemic sparked what could be the beginning of the next financial crisis, yet it might be too soon to tell. What began as isolated cases during December 2019 in China of a respiratory disease quickly escalated to a global pandemic with over 374,000 reported cases in over 190 countries.  The scale of global de-risking and fear has led to broad-based selling across all asset classes, including treasuries and gold.

 

Digital asset markets:

The flight to safe assets by investors has been felt by $BTC throughout this period as well - losing 51% of its value during March 11th-12th. Its bounce from those lows has been as extreme, from $4,000 to $6,420 at the time of this writing, a swing of more than 60%. 

The briefly discarded digital-gold store of value and safe haven narratives are re-emerging.  We are seeing for the first time in 10 days a decoupling from traditional markets. At first, BTCUSD behaved highly correlated with many stock indexes. Now, and since last Friday, $BTC is inching up while the SP500 and others are still being battered by the current health and financial crisis. It's still soon to tell but if $BTC's nature is one of an asset uncorrelated to traditional financial instruments, this is the time to prove it.


Trade idea:  BTCUSD Long, decoupling ahead? 

Following last week’s trade that turned out to be a successful one as $BTC seemed to find its bottom (at least for the time being), this week’s first trade looks to add on to that position.

Bitcoin is attempting, once again, to tackle the $6,700 price mark just as it unsuccessfully did last Friday. Reclaiming this level would be $BTC’s second milestone after this month’s crash – the first one being the bounce off 50% from this year’s lows.

Interestingly enough, a new narrative has surged and its giving hope to $BTC hardcore holders: the decoupling from traditional markets. Since the March 12th crash, $BTC has sold off just as equities did, following closely the SP500, NASDAQ and Dow. However, since March 18th, $BTC has behaved differently- rallying as stocks continued to decline. It might be too soon to say Bitcoin has reclaimed its spot as an uncorrelated asset but these past few days might give us a hint to what is coming. If $BTC is indeed an uncorrelated asset, a store of value, and a safe haven, this is the perfect ground to prove it.

Aside from this, and technically speaking, there are three elements that can support a $BTC long trade looking at trend continuation:

  1. A higher low: the first hint of an uptrend
  2. The breach of two trend lines that acted as resistance (technically known as a Chuvashov fork or C-fork, shown in the first chart below)
  3. Reclaiming the $6,700 level which was rejected only four days ago and that was also the bottom in December 2019 after BTC’s 6-month downtrend.
    • Entry Price: $6,710
    • Stop Loss: $6,330
    • Take Profit: $7,770

 

Chart 1:  The trade idea.

 

Chart 2: The importance of the horizontal level to surpass: the December 2019 bottom support.

 

Traditional markets:

Markets have already felt strong headwinds with the SP500 losing -35%, the Dow Jones Industrial Average -38% and NASDAQ -29%, all from their all time highs recorded as recently as a month ago.

In an attempt to offset effects on the markets and in the overall economy, governments and central banks opened their war chests and pulled the trigger in what is quickly becoming the most aggressive stimulus packages since 2009.

The FED announced an emergency cut rate to 0% (-0.25%), Bank of England also cut its rate to 0.1%, followed quickly by emerging market economies such as Mexico and Brazil - who also trimmed their rates. Instead of cutting rates, the ECB announced a €750 billion Pandemic Emergency Purchase Program (PEPP) to acquire private and public sector securities in an attempt to mitigate the economic risks that an escalating number of COVID19 cases would create. In addition to the FED’s $1T relief package, the US Senate is debating a stimulus plan that would grant every American up to $2,000 until the coronavirus hardship ends.

During this period, another unexpected “Black Swan” event has transpired with the Saudi Arabia-Russia ‘oil production war’ sending crude prices down 62% in four weeks. Prices crashed after talks between Russia and OPEC, about production cuts amid the coronavirus outbreak, failed. In retaliation, Saudi Arabia pledged to increase production to its maximum capacity. With less demand and a surplus supply (and increasingly scarce places to store it globally), prices have nowhere to go but down.

Emerging market currencies are now feeling the strength of the US dollar as investors flee to the traditional safe haven of USD-related instruments, and the economic prospects of these countries are increasingly uncertain. USDMXN reached 25.4 today, USDBRL 5.22, and USDCOP 4,218, all of which are all-time highs.

 

May the trend be your friend!

 


 

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