Looming Bitcoin scrutiny fails to make a mark on price

No fear

Just the odd $700 whipsaw on Monday by Bitcoin, so far, after a more severe $1,287 sell-off from latest record highs on Sunday. These of course were dwarfed by last week’s one-day rout down from $11,395 to $9,000. What do these gyrations mean? The answer for traders at least is ‘not much’, particularly in the context of the cryptocurrency’s retention of a 1,000% advance this year. The pithier takeaway is that it will take more than the flurry of recent news suggesting increased regulatory scrutiny to slow Bitcoin’s advance.

This demonstrates again that any marked downward pressure would only be likely if the market perceived an impact on demand from the cryptocurrency coming under the purview of government agencies. And with the blockchain technology presenting tortuous, if not insurmountable, hurdles for regulators, we expect Bitcoin to continue to shrug off such headlines for the foreseeable future.

Shrugging off the shorts

Similarly, the market continues to accentuate the positive vis-á-vis a steady stream of news noting progress by giant derivatives exchanges with plans to list futures contracts.  Bitcoin momentarily appeared to add some $250 in the minutes following the CBOE’s announcement on Monday that it would launch its contract on 10^th December, 8 days before rival CME Group said it plans to open trade in a similar derivative.  Nasdaq confirmed on Friday that it will list its own Bitcoin future in 2018.

Apart from shining a light on the market’s innards, the one thing these new products will bring that didn’t exist before is a facility for multimillion dollar speculators to go short of Bitcoin in the kind of structured and controlled environment that is a prerequisite for many to do business. Once such venues become available, it makes sense to assume bouts of downward price pressure will increase in frequency and longevity. One interpretation of the market’s blasé reaction so far is in line with the complacency that pervades trading around the asset in general. We take it as another sign that the market can safely be characterised as a bubble.

More buying likely into futures launch

An alternative interpretation, albeit a transitory one, to explain Bitcoin’s contradictory reaction to news of potential impediments is that each future contract will be comprised of several coins, for instance, 5 per contract at the CME. This implies a fillip to demand that could yet lift prices beyond the latest peak of $11,800 in the near term.

Overall though, it makes sense to us that Bitcoin as a pure market driven largely by ‘sentiment’, i.e., market psychology, would only face a significant destabilising drop—say a high double-digit percentage fall—from the onset of genuine fear. We see such an event as unlikely whilst Bitcoin continues to extend its string of weekly highs. It has posted a new high each week since late September. The watch is on to see whether it can close above $11,800 this Friday.