Why Did Bitcoin Plunge Yesterday And What Next?

OK, very good morning to you. Hope you're doing well. It is Friday, 27th of November, so for any US followers, I hope you're enjoying your Thanksgiving festivities at the moment, or the best you can at least in the pandemic. Quick shout out to our trainees, they're going live as of next week, so good luck, get some rest this weekend and then some really awesome trades we've had in the Amplify Live community. So do check out the link if you'd like to have a look at that in more detail. We've had a really great few kind of elements of, of content as well that have gone into that over the last week. We've had Nick Baker, the Amplify chairman and the co-founder of Alpha Financial Markets, he joined us for an exclusive session on Wednesday night. I had a really great chat with one of the traders about vaccines and everything you need to know about the short-term and long-term investment kind of implications. That recording is there for the community, but a highlight reel, if you like, is going to go out on our YouTube channel this weekend. And then finally, I took part in a virtual roundtable with Mike Bellafuri and Dr. Brett Steenburger, and that's going to go out as well to the community later on today. So plenty for you guys to check out, because otherwise it's going to be relatively quiet, all things remaining equal. And that's because of the fact that obviously for Thanksgiving, markets in the US closed yesterday. And although there is open trade in the likes of the NYSE and the CME today, things operate on a reduced schedule. So straight off the bat, the, the NYSE, instead of closing London time, the usual around 9 PM, it's going to be 6 o'clock. And that'll be the same time for the CME pit as well. So let's get into the charts. And what have we got? It's kind of a reflection, if anything, going through the overnight news flow. It is pretty quiet in terms of one singular story that really sticks out. Looking at the, the asset class movement, equity markets notably have recovered going through the late part of the Asia-Pacific session. There was some Chinese data overnight, so just to quickly show you, profits at Chinese industrial enterprises surged at their fastest pace in a single month in almost 9 years in the month of October. Industrial profits for October year on year came in at 28.2% against a previous of 10.1%. So very strong numbers there coming out. Industrial profits rising for a 6th straight month here in China as they continue to kind of stabilize post-pandemic. Long term, how sustainable is this? I mean, certainly it's coming from a very low base of where we were back in the spring, but also as well, any inflation seen on a more global level is obviously going to impede the ability for industrial profits to remain at such a rapid pace at this point in time. But nonetheless, an overall fairly solid reading that was seen overnight. But equity markets, as I said, not— I mean, if you look at it from a slightly more further top-level view overall, I mean, the Dow future, the S&P futures are flat. The NASDAQ outperforming just a touch. And that has been a little bit of a recurring theme as we've gone through this week, which is a little bit more of the, the kind of tech and stay-at-home names still fairly prevalent at this point in time. Irrespective of this kind of early talks about rotation and some of the vaccine news that we've had, I still think that there's the reality about the restrictive measures as what we heard announced in the UK is still going to have on people's lives and then the subsequent need for some of those goods and services provided by those types of single stocks and so on. So NASDAQ continues to see a minor bit of outperformance. Elsewhere in the currency market, you can see euro-dollar and cable have recovered what was a large portion of the downside pressure that was witnessed yesterday. Interestingly, the dollar index is pretty flat this morning. But it's reversed the entire gain that was seen this time kind of yesterday through the morning. So it's interesting, every time the dollar kind of has a push down, has a decent kind of bounce, then it pushes, and, and the pushes down are getting ever lower in terms of the dollar index being concerned. So still, um, directionally, uh, I would, I maintain a kind of more negative bias on the, the dollar. And I think just reading through a couple of the articles this morning on Bloomberg, that's kind of a consensus view on the street at the moment. So I guess it's just about timing because we do tend to get these kind of technical kind of pushes back up in the dollar before then the overall downward trend resumes. So timing is quite key there. Otherwise, in gold, we're pretty flat and we're trading within a range, I would kind of say, between really that key $1,800 level, which of course was that, that close proximity to the 200 DMA we were looking at when gold really got hammered right at the beginning of the week. And since that point, we're kind of stuck in that range of around those lows. And today, kind of the S1, the lows that we printed back on Tuesday, we tested on Wednesday night. And then you've also got the high of the range seen up and around the R1 today, which is around $2,200, the high print of earlier in the week. So not too interesting right there right now for gold, but certainly a nice framework to work with for the session ahead. TINA is pretty quiet. Oil, um, is a— has backed off a little bit, obviously, from, from yesterday's move. It's kind of held that after we surged higher through what was Tuesday's session. We really broke out to the upside, which was on that the longer, uh, higher time frames, the breakout of the summer high, putting us back to kind of pre-pandemic levels in oil. We saw a bit of selling pressure. One of the things a few people are talking about from the overnight session, if I bring it up, is this. A little bit of conversation about OPEC. One thing is that just given the dramatic rise of which we've seen on prices, does this then start to bring about a degree of headache for OPEC in order to manage then the other countries that are within that, that, that collection of oil-producing nations? So higher prices obviously good for the likes of Saudi and so on, But countries like Iraq, their deputy leader yesterday criticized OPEC, saying that the economic political conditions of member countries should be considered before they are asked to withhold production. Now, remember, this comes with expectations, of course. What's also helped to underpin some of the recent rise in oil, amongst other things like vaccines and so on, has been the idea that OPEC are going to roll over the existing output cut for a period of now consensus around 3 months. There were early noises about 6 months, but the idea being that if oil is moving higher, well, for someone like Iraq, whose economy really has been decimated over recent years and decades due to a variety of different things, but Islamic terrorism, for example, and war, for them, they've always been fairly non-compliant. They've towed the line so far, but with oil this high, do they now start to break out a little bit of being that disciplined? And if so, that waters down how effective then these supply cuts are, irrespective of whether they get rolled or not. So something just to keep an eye on. As the headlines suggest, tensions are rising. I would be mindful of those headlines. Looking at oil this morning, we are in fact just seeing a little bit of a test down at around what was the Asia-Pacific kind of low point, if you like. And yeah, just keeping an eye as an area of support or in the futures around $44.74. Here, and we're just starting to have a, have a test on the downside. If that does occur, then obviously technically there's a little bit of room to just reverse some of the initial gains that were seen on that solid breakout on the, on Tuesday session. All right, well, let's get into some of the other headlines to be aware of. This is one you probably read about Trump. He actually gave his his first kind of Q&A with reporters since the election. He hasn't actually formally spoken to them since then. He said he would relinquish power if the Electoral College affirms the Democrats' Joe Biden's win, and he signaled though he would never formally concede. He also said he may even go as far as just skipping the Biden inauguration if that does happen. Which would be unusual. Normally there's a whole ceremony and there's a handover and transition. He probably will do that. I just think it's, it's just the drama he likes to instill at this point in time. But the idea then being that the Electoral College electors in each state are due to vote in the middle of December on the 14th. Certificates recording the electoral vote results in each state must be received by the President of the Senate no later than December 23rd. So that's then when you'll get something more conclusive. Although Trump has kind of been yielding, somewhat conceding that he has lost, this would be the definitive formalities that would then rubber stamp that, um, in that sense. So something to just be aware of. The other thing is on the COVID side, I just really want to focus on the UK. Um, there was a little bit of downside pressure on the pound yesterday, but I think that was more to do with the dollar initial strength that we saw in the European morning on Thursday. However, obviously there is economic implications and social. There's a lot of pressure at the moment on Rishi Sunak, who was kind of the golden boy of the initial outbreak of pandemic, given the depth and scope that he went to in order to kind of bail out the economy and people's jobs. But now reality bites, I guess, and The prospect of diminishing kind of support for things like furlough and increases potentially in tax and VAT and these sorts of things is what needs to happen economically, fiscally managing the situation because of the fact that the UK is borrowing more money than it's ever done and issuing, as we saw from the spending review, almost double that of what we had in the financial crisis. So someone's got to pay. So this is interesting period, I think, politically, economically for the UK. On the economic side, what we had announced yesterday was— before I go into Brexit— was this. And yeah, to update you, more than 20 million people across large areas of England will be forced to live under the tightest and toughest category of COVID-19 restrictions when the national lockdown ends, as we know, on December 2nd, London is going to be placed on high alert. And high alert is the second level. But as you can see here, there's actually going to be more areas as cases have picked up that are going to be classified in level 3. And so that, of course, does have economic implications. But perhaps partly then, and this has come to the disgruntlement of a lot of areas in the north, London's going to be slightly less severe than the most stringent measures, albeit this latest tiering system obviously is much more onerous than, than the last. So again, this needs to be factored in in terms of the speed of which the economy can recover, given the fact that some form of level of restrictions is likely to be in place at least until spring and Easter of 2021. On the Brexit side of things, sticking with the UK, where are we with this? Well, again, we remain where we are. The sticking points— fishing waters in terms of the access to British waters, the level competitive playing field, the agreement and how it will be enforced— are still the main sticking points. The latest here has been that they're going to pick up and resume face-to-face trade talks this weekend, and that comes after the kind of abrupt halt of actual physical meetings that took place after one of the EU members had contracted COVID and they needed to quarantine. So the show goes on. I don't think there's anything really to see here as yet, uh, and timings-wise, uh, still sticking to the, the kind of overall base view, the kind of more mid-dec, end-dec is where things will get decidedly more, more interesting, getting towards actually a deal getting done. The other headline I just wanted to mention was about vaccines. You probably read about this, came out yesterday, but probably worth Just mentioning AstraZeneca Oxford University's vaccine is set to undergo a new global trial. And this comes after the company's come under a number of questions and criticisms about the claim that the vaccine can protect up to 90% of people against COVID-19. Just to give you a bit of an idea, the data that was revealed by the head of the Operation Warp Speed, which is kind of the vaccine team in the US, They said the regime showing the higher level effectiveness was tested in a younger population, so that's point one, and obviously that's going to have a big difference toward then what has been a, a virus that's targeted and had more impact on the older demographic. So is it really representative of an actual effective result? And then also the half dose that was given to some people was because of an error in the quantity of vaccine put into some of the vials. And none of those details were disclosed by AstraZeneca or Oxford University in their original statements. And this has brought about some concern about the transparency and validity of any, not just that data, but forthcoming data in future. And so therefore they're going to have extra global vaccine trials being run to appease those concerns. So yeah, this is it, this is it really. And as I said, had a fantastic chat with one of the guys who's really clued up on this in the Amplify Live community, and he's put together this kind of ultimate crib sheet. And there was an hour-long discussion he and I had, and he goes through all of this and why and how and the differences in the technology of vaccines and what it means and who he favors in terms of the ultimate winners in this situation. So honestly, do check that out. It's a really, really great session. Um, and then I can't, I can't go a briefing without mentioning Bitcoin. I must put a legal disclaimer. I mean, I know nothing about Bitcoin. I have no interest in Bitcoin, but obviously it's a talking point at the moment, and I thought I'd just bring up the chart of Bitcoin. And the reason for this is some quite spectacular movement that was seen yesterday, and a few points I want to make. So I mean, this is Bitcoin, and in the month of November. So just to give it a bit of percentage reality check, let's just take November alone. Well, yeah, let's just take November alone just to keep it to the month. Bitcoin has risen about 50% or there or thereabouts. And then yesterday we got up— there's obviously a very important psychological level which is at $20,000 because as we know, $20,000 kind of marks then that, that all-time high that we got during the kind of euphoria that was the first wave of real public interest into, into crypto and Bitcoin a few years back. But we got close to $20,000, and actually, if we look at it on a 60-minute, you can see then, you know, there was so, so much headline press at that point because the acceleration that the crypto was seeing. And then yesterday, it kind of imploded somewhat, and we saw a move of just over 17% if you're looking at the futures from the initial high to low. And that, that unfolding pretty much within a very short period of time. So, you know, why does this sort of thing happen? You know, why do you see these massive pullbacks? I mean, there's a couple of things that people were pinning it on, and again, I'm just going off what I'm reading. I'm not— I'm no Bitcoin expert, but one thing I can say is from a profit-taking point of view, for an asset to rise 50% within a month is pretty incredible. And what you tend to see with something like a crypto product is a lot of behavioral kind of nuances playing out in price. What I mean by that is you get a lot of momentum that tends to come in shifts as public interest intensifies and media coverage picks up. There's kind of people feeling the FOMO, the market rises And given that it's an asset that's particularly hard to pin down from its underlying true fundamental value, a lot of that, you know, question of, well, can it go up? Well, sure. How high can it go up? Well, Citigroup was saying a few weeks ago it could go to $300,000. Forget $20,000. But that's that kind of animal spirits that can take over, as we know. So when something rises, you know, the quicker you rise, the harder you fall. Um, that was, I think, a chief reason of why— profit taking purely of what happened yesterday. A lot of people just looking to take some off at around what is technically a really important psychological level at $20K, which obviously was the top before. The other thing that a few people were looking at was the fact that the Coinbase CEO Brian Armstrong tweeted, um, and this was before I think all of the moves started to unfold, uh, he was tweeting about speculation the US is considering new rules that would undermine basically the ability to be anonymous in digital transactions. And apparently the Trump administration, before they leave, were going to rush through some degree of legislation. And so that might have spooked people. Again, just more of a reason to take profit on that, that surge we've had over the last month, I'm sure would have contributed it to a certain degree. But all in all, you know, when, when I look at a 17% move in Bitcoin, you have to disassociate yourself, I think, from what is norm from traditional assets. And to be quite frank, a 17% move, uh, I don't think would make many crypto more long-term investors nervous at all. Um, obviously if you're a punter and you've got duped into getting hold of it because you've been reading it in the press, then it's a very painful morning. But I think coming back down to these levels, to be quite frank. I think if— as long as we hold above this level of around $14K, then it's all good. And I think ultimately this, this thing does break $20K at some point in time, and, and then who knows where it goes. As I say, it's not really my place to say given what my— what I look at day to day. All right, well, quick look at then the calendar for today. Very quiet, as you would imagine. Do remember that volumes will be low. US participants, if you've never traded a post-Thanksgiving session, it kind of is like, although markets are open, it's the kind of Thanksgiving hangover. Not a lot of people stateside come into work. Generally it's booked off so they can make— take advantage of a 4-day kind of break. So just be aware of that. I think technically, again, looking at the ranges we've been trading, so Uh, the S&P, the Dow, some interesting upside levels here to keep an eye on. Oil on the downside, as we discussed, the range in gold. And I'd be kind of just waiting to see, with no real definable bias, just how the market plays out on some of those, those technical ranges. Um, something perhaps to have a lookout for is we normally get kind of real-time data metrics that get released on the wires in regards to the performance initially of Black Friday, kind of online transactions and how are they shaping up. Could be quite interesting just to see the general appetite for digital transactions. Overall, the perception is that, you know, it's kind of an Amazon Christmas because of an inability to really go into shops and certainly peruse the shopping aisles at this point in time. So all in all, even given the state of the situation of unemployment and low confidence and savings and so on, probably this will be a, a pretty happy Amazon Christmas as far as that company is concerned, but also for the Black Friday performance as people try to front-load a lot of their purchases to pick up a discount rather than pay full price, even more so in this type of climate. And that's it. So as I said, got that video, kind of the highlights of that vaccine discussion, uh, it's going to go out on YouTube, uh, on Saturday, so tomorrow morning. Make sure you subscribe to the channel, put on the notifications, and you'll be able to get that. And then for the Amplify Live community. I've got that discussion between me, Mike Bellafuri, and Brett Steenbarger. I'll release that to you guys this afternoon. All right guys, have a good weekend, take care, and I'll see you Monday.