The price-action for Bitcoin (BTC) has been defined by a relative lack of volatility in recent months.
But after staying range-bound near the $US9,500 (~$13,500) level since early June, it broke out in a big way overnight.
BTC rose by more than 10 per cent to continue its move above the $US10,000 barrier. A short time ago, it was holding its gains above $US11,100.
The move accompanied a strong session for US stocks, as the S&P500 rose by another 0.74 per cent to start the week.
Volatility breakout
For Alex Saunders, the founder of cryptocurrency news platform Nuggets News, the move in BTC follows in from similar demand in other scarcity assets — most notably gold and silver.
“Gold’s gone to all time highs, and in crypto a lot of people have been focusing on the excitement from the alt-coins in the Decentralised Finance (DeFi) space,” Saunders told Stockhead.
DeFi is largely comprised of decentralised applications on the Ethereum blockchain, and trading activity has picked up amid the quiet period for BTC.
An example of new demand in DeFi is the ChainLink project, where LINK — the digital asset used on Chainlink’s blockchain network — has risen by more than 80 per cent in July.
“So Ethereum’s been surging on the back of that, and there’s been less attention on BTC,” Saunders said. “It’d been quietly range bound and the volatility had reduced to multi-year lows. So our view has been to get long Bitcoin volatility, and we thought it would be a break to the upside.
“In terms of the price action, so many people are focused on that $US10,000 number. On the weekly charts, technical traders were looking at the $10,500 level as key support. So we’re through that now on good volume, and I think fundamentals as well as the macro backdrop are getting stronger.”
Macro tailwinds
In terms of short-term catalysts, Saunders also highlighted a recent directive from the US Treasury, which took a progressive view towards crypto and indicated its approval for federally regulated US banks to run crypto custody services.
And on a macro level, he holds the view that record stimulus measures from governments and central banks in the wake of coronavirus bodes well for scarcity assets such as gold and BTC.
“BTC still only has a market capitalisation of around $US200bn, so in my view the potential upside is still high,” Saunders said.
“Just like we’ve seen in precious metals where gold has broken higher, and silver, I fully expect BTC to break a new all-time high if this continues.
“The only thing I can really see stopping this move is a stock market correction. If stocks really fall out of bed, like we saw last time (in March) with a big liquidity crisis then in that case you’d probably see everything selloff.
“But if they want to go down this path in terms of stimulus, it’s all pretty inflationary and that’s usually supportive for scarcity assets.”