Commodities Slump Paints A Gloomy Outlook For Bitcoin  

Commodities Slump Paints A Gloomy Outlook For Bitcoin  

Bitcoin’s recent rally has come to a slow down after it climbed above $8.8k and ran into a key resistance zone. This resistance level coincides with the previously broken market structure which is why the price will have a very hard time breaking past it. Although many still await a retest of $9k and the 200-day moving average, it is pertinent to note that it didn’t happen the last time BTC/USD was in a similar situation. So, there is no certainties that it will actually end up happening by all means. We might very well see a downtrend begin before that happens. Speaking of downtrend, the rising wedge has to be broken sooner or later. The recent pump in BTC/USD has merely stalled the inevitable. 


There is a lot of talk about Bitcoin being digital gold and comparisons are often made how BTC/USD benefits from movements in XAU/USD and that there is a direct relationship. However, that is not always the case. Even when it is, that is more likely a result of a correlation with oil prices actually. Bitcoin has a more established correlation with oil compared to gold. This correlation is also more meaningful because it has triggered some key movements in the cryptocurrency market. For instance, in June of 2014 when the price of oil started to crash, we saw BTC/USD decline and capitulate soon after. The same is expected to happen this time if WTI Crude Oil (USOIL) breaks below they key symmetrical triangle that it is currently trading in. 

The rationale behind a decline in the price of oil has a lot to do with politics rather than finance alone. We have seen numerous conflicts in the world as a result of the US’s interest in keeping the petrodollar in place. We saw what happened in Iraq when Saddam Hossein started to threaten that status quo. The same with Libya, Venezuela and many other countries. At the moment, Saudi Arabia and Iran enjoy their status as global leaders in oil but if the US continues with its shale production and its output increases further, it might become a major player in the space as well. This would also afford the US more stability and certainty regarding the status of the US dollar as the global reserve currency. 

It is in the interest of both the US and Saudi Arabia to hinder Russia’s foray into oil expansion in Europe. We could see product outputs rise significantly this year leading to decline in the prices of oil and other commodities. Bitcoin could thus once again see a 2014 styled correction from current levels. The EUR/USD forex pair is also on the verge of another downtrend and the S&P 500 (SPX) risks a major correction that could trigger a Feb, 2018 styled crash in Bitcoin (BTC). All things considered; the outlook remains gloomy for Bitcoin despite recent bullishness. 

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