BITCOIN: THE RISE OF CRYPTOCURRENCIES

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Technicals

Looking at the Daily Chart (1D) we can see a symmetrical triangle being formed. A symmetrical triangle chart pattern represents a period of consolidation before the price is forced to breakout or breakdown. A breakdown from the lower trendline marks the start of a new bearish trend, while a breakout from the upper trendline indicates the start of a new bull trend. The pattern contains at least two lower highs and two higher lows. When these points are connected, the lines converge as they are extended and the symmetrical triangle takes shape. You could also think of it as a contracting wedge, wide at the beginning and narrowing over time.

Trading Symmetrical Triangle (BUY trade, do the reverse for sell trade)

1) Identify at least two lower highs and two higher lows and draw a Symmetrical Triangle pattern by connecting these swing points.

2) Check to see if the prevailing trend is moving upwards. - The pattern works best when used as a continuation pattern. This means that before the symmetrical triangle pattern forms we need to have a prior trend (bullish).

3) Wait for the Triangle breakout and BUY only after the breakout candle closes above the descending trendline.

4) Take Profit 1 at the at the same price distance as the Triangle Height, Take Profit 2 at 2xTriangle Height - triangle height can be obtained by simply measuring the price distance from the highest to the lowest price point within the triangle formation.

To measure a profit target from the triangle shape pattern you simply take the triangle height and project that from the breakout point.

The ascending triangle chart pattern employs multiple entry techniques.

The first take profit comes at the same price distance as the triangle height, and because we have found that there is more often a high probability of much bigger movement generated by the breakout, we have a second profit target at 2 x triangle height.

5) Place the protective stop loss below the swing low prior to the Triangle Breakout. - A common approach is to hide your protective stop loss just below the last swing low prior to the breakout. You can use different stop loss techniques as well, like placing the SL below.

Fundamentals

The story of bitcoin in 2020 might be a classic tale of how a new technology emerges at the fringe, gradually wins the attention of many institutional funds and retail investors alike, then suddenly gets swept up by Wall Street, heralded as the future of currency.

For beginners, Bitcoin is the name of the best-known cryptocurrency, the one for which blockchain technology was invented. A cryptocurrency is a medium of exchange, such as the US dollar, but is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.

First things first, it is important how cryptocurrencies are produced. Unlike fiat currencies where by a government decides when to print and distribute money, Bitcoin doesn't have a central government. Bitcoin is mined by completing "blocks" of verified transactions which are added to the blockchain. Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle first, and the probability that a participant will be the one to discover the solution is related to the portion of the total mining power on the network.

Currently, there are around 18.5 million bitcoin circulating in the market, with a finite number of 21 million bitcoins that can be mined in total. However, it is note worthy that 20% of all currently mined bitcoins are lost, according to an analysis by Wall Street Journal. This means that around 3,.7 million bitcoins are gone forever and cannot be recovered, which translates to approximately $170.2 billion, at the rate of around $46,000 SGD per bitcoin at the time of writing.

Another important point to note is that for every 210,000 blocks mined, which roughly takes about 4 years, an important event known as the "bitcoin halving" will occur. It is an event where the reward for mining new blocks is halved, meaning miners receive 50% fewer bitcoins for verifying transactions until the maximum supply of 21 million bitcoins has been generated by the network. In May 2020, the number of blocks hit 630,000 and the block reward fell from 12.5 to 6.25 bitcoins.

We believe that bitcoin's meteoric rise have been attributed largely to the halving of bitcoin and the weakening of the US dollar due to the COVID-19 pandemic. Below is a chart of the M3 money supply of the United States.

From the chart, we can see that there has been more money flowing in the capital markets. This is due to the excessive printing of the dollar by the Federal Reserve to rescue the economy amid the coronavirus pandemic and to fund the 2 trillion dollar CARES act. For reference, here is a chart of USDSGD.

The significant weakening of USD has prompted many to seek alternative to hedge their USD exposure. Traditionally, gold was used as a main hedging tool in the past. Fast forward to 2020, cryptocurrencies, in this case Bitcoin, is offering investors another option. Institutional buying and endorsement by high profile investors such as Square, Billionaire investor Mike Novogratz among many others.

The coupled increase in demand for Bitcoin and the lower supply after halving event in May 2020 are the 2 main drivers that drove Bitcoin to break its all time high price in 2017 and breaking new all time highs starting in 2021.

Conclusion: We are bullish on Bitcoin for the long term ride.