Bitcoin Battles for $10K as Gold Prints Over 7-Year High

Bitcoin’s attempt to scale the psychological resistance of $10,000 looks to have stalled again, even as gold soars to new highs.

The top cryptocurrency by market value is currently trading around $9,630 at time of writing, representing an over 145% gain on the low of $3,867 registered March 12, according to CoinDesk’s Bitcoin Price Index. 

However, the cryptocurrency faced rejection near $10,000 early Monday – its third failure to cross info five figures since May 1 – and printed a low of $9,450 during European trading hours. The drop put prices down over 0.5% on the day.

Meanwhile, gold, a safe haven asset, is currently trading 1.16% up on the day at $1,760 per ounce – the highest level since October 2012. The precious metal has risen by 4% since May 12 and is up 21% from the lows registered in March. 

“Bitcoin has not been able to stay above the significant US$10,000 level [but] it has made considerable gains through the year. Gold has seen more than a 15% increase since 1st January 2020, but we have to remember that BTC has also increased by 33% through the same period, “ said Marcus Swanepoel,  CEO at cryptocurrency platform Luno.

Essentially, Swanepoel is suggesting bitcoin may be facing temporary bull exhaustion, as buyer fatigue is common following strong price rallies like the one seen in bitcoin over the past two months. 

Gold, too, faced buyer exhaustion following a quick rally from $1,450 to $1,747 in the four weeks to mid-April. The safe-haven metal consolidated in a narrowing price range for nearly a month before breaking higher on May 14. 

Pullbacks may be short-lived

As such, bitcoin may continue to under perform compared with gold in the short term. The cryptocurrency may also suffer a drop similar to the one seen following bitcoin’s second halving on July 9, 2016. Bitcoin underwent its third halving last Monday. 

However, the post-halving pullback seen in 2016 was short-lived and the cryptocurrency went on to hit new record highs within one year from halving. “The dramatic increase in bitcoin value following the 2nd halving was not immediate, and we still feel that the potential 3rd halving increase is likely to come through,” said Swanepoel.

Additionally, other macro factors which supposedly pushed bitcoin higher over the last two months, are still valid. 

The U.S. Federal Reserve continues to expand its balance sheet via unprecedented inflation-boosting open-ended asset purchases and stands ready to do more in the near future.

“I will say that we’re not out of ammunition by a long shot. No, there’s really no limit to what we can do with these lending programs that we have. So there’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to,” Fed Chairman Jerome Powell told CBS’s “60 Minutes” on Sunday.

Further, the U.S.-China tensions over the coronavirus outbreak are leading to a renewed trade spat and major economies are still struggling to decide whether to reopen economies in spite of the coronavirus dangers or risk a more prolonged slowdown with continued lockdowns. 

Demand ahead?

With all this in mind, investors have a strong incentive to look for alternative safe havens apart from traditional assets like gold, U.S. treasuries and Japanese yen. Increasingly, investors appear to consider bitcoin a safe haven asset and a hedge against inflation. That’s because the cryptocurrency’s supply is limited to 21 million and the pace of issuance is cut by half every four years at the halving events. 

And new investors are indeed entering the crypto space, according to B2C2, one of the largest over-the-counter (OTC) market makers. “We are seeing explosive growth in OTC volumes this year with new counterparties coming online each month. Geographically there’s been a large pick-up in hedge fund activities from the Americas while we’ve seen a pick-up in European high-net-worth demand,” Phillip Gillespie, CEO of B2C2 Japan, told CoinDesk. 

“Our sharpest directional clients are all quite long and seem to be positioning for a break higher,” Gillespie added, drawing attention to the bitcoin-gold ratio, which may provide a hint of increased investor interest in alternative inflation hedges like bitcoin. 

The ratio currently stands at 5.44, while the resistance of the trendline linking the December 2017 and June 2019 highs is located at 6.40. 

A move above that hurdle could mark the beginning of a larger shift in investor attitudes toward the cryptocurrency.

Disclosure: The author holds no cryptocurrency at the time of writing.