I call it “golden alignment”. It’s when the short-, medium- and long-term moving averages are all in perfect alignment. The result is a perfectly-formed trend.
In all the political and financial volatility we are seeing around the world at the moment, there is one asset that is currently in a golden alignment. It’s not tech stocks, or gold, or bonds, it’s an apolitical asset that is outside of the traditional financial system.
It’s an asset that I am forever harping on about, and when it gets into golden alignment you should sit up and take notice, because a lot of money gets made. What asset am I talking about? Yup. Bitcoin.
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This is an extraordinarily strong trend
Let’s start by illustrating what I mean by “golden alignment”. The most common measures of short-, medium- and long-term trends are the 20-, 50- and 200-day simple moving averages (SMAs). I get a bit nifty and use the 21, 55 and 233, mainly because they are Fibonacci numbers and I find they work better. But for our purposes here we will use the 20, 50 and 200 SMAs.
Golden alignment is when you have the price on top. Underneath the price, is the 20; underneath that, the 50; and beneath that, the 200. All should be rising. It’s what a bullish trend looks like.
Here’s a six-month chart of bitcoin. Cast your eyes to the right-hand side of the chart. In black we have the price, then the 20-day SMA (blue line), the 50-day SMA (red line) and the 200-day SMA (green line). Things fell into alignment in mid-October. The trend over the past six months is up. Bitcoin is rising on all timeframes.
Now we pull back and look at a two-year weekly chart of bitcoin. The blue, red and green lines now represent the 20-, 50- and 200-weekly moving averages. Again we see that bitcoin is rising on all time frames. This, my friends, is a trend.
There will probably be resistance at just below $14,000 as bitcoin tries to break through its summer 2019 highs. It would actually be constructive to see it pull back a couple of thousand dollars and consolidate. A little. I like incremental climes rather than moonshots – they tend to be more sustainable.
The big players in payments are getting into bitcoin
The news that has driven this latest move is of course Paypal’s announcement that it will now be accepting bitcoin. It’s another step towards the mainstream.
Earlier in the month, Twitter CEO Jack Dorsey had his payments company Square (of which he is also CEO) buy $50m of bitcoin. Square paid an average price of $10,600 a coin. It’s up 30% on its investment already.
Dorsey is on the record saying that he believes bitcoin will one day become the world's “single currency” and his intention was to make it more accessible to people through Square's Cash App. My inference is that bitcoin, should a significant correction come, will now find support at Dorsey’s buy price.
We noted earlier in the year how bitcoin was behaving like a tech stock. In other words, it was moving up and down in apparent synchronicity with the Nasdaq. When tech stocks were rising, so was bitcoin, and vice versa. They have now decoupled. Tech has been under pressure since early September. Bitcoin has marched higher.
It is, as Charlie Morris in the Fleet Street Letter puts it, “an asset which is credible, modern and versatile which is yet to be embraced by the many. A decade of growth is in the bag. The numerous scandals are behind it and it is entering the mainstream. It has piqued the interest of central banks, who want to mimic it, and is showing remarkable macro credentials. It is rapidly maturing, and a growing list of companies have announced they are bringing it under their wing. Bitcoin is growing up. Best to own some.”
These are my sentiments precisely. Bitcoin has so much potential, you have to have some exposure to it.
With bitcoin, boom follows bust follows boom – don’t miss this one
Ever since its inception ten years ago, bitcoin has displayed a repetitive trading pattern. It rallies hard and fast for six months to a year. There is a speculative frenzy. The bubble pops and bitcoin falls hard and fast, before entering a period of consolidation that lasts a year or two. Then it rallies hard and fast again, there’s another frenzy, a pop and another period of consolidation.
In 2011, it went from 20c to $32 then collapsed all the way to $2. (Still ten times higher than where it began the move). It didn’t break out to new highs for another two years after that. But then in 2013, it went all the way to $1,200 before collapsing back to $200. It went sideways for several years. It didn’t break out to new highs until 2017. Then it went to $20,000 – before collapsing back to $3,000.
And here we are three years on in another one of those periods of consolidation. We haven’t retested the old highs of $20,000 yet, but the current trends suggest we are on the way. If the past is any guide, when it breaks above it will move very quickly. You want to make sure you already have your seat on the plane, before the frenzy takes hold.
Check out Dominic’s new audiobook, The Shadowpunk Revolution, on Audible and iTunes. It’s a sci-fi rock drama about invisibility with a full rock soundtrack. And it’s very much a metaphor for bitcoin. Out now on Audible and iTunes.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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