23 February 2021

Bitcoin Pares Gains After Hitting Record Highs

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What’s happening: Bitcoin tumbled on Monday, after jumping to a fresh all-time high over the weekend.

What happened: The world’s largest cryptocurrency by market capitalisation has recorded sharp gains this month, driven by institutional buying and tweets from Tesla boss Elon Musk.

However, Bitcoin slipped from its recent highs on Monday, following remarks from the world’s richest man.

Why it matters: Bitcoin has been on a roll this month, with the virtual currency surging to more than $58,000 over the weekend. Prices were propelled by purchases by Elon Musk and institutional investors, who consider the cryptocurrency a better alternative to safe-haven gold and the US dollar in the current environment.

Bitcoin has spiked more than 60% in February alone, reaching a fresh all-time high of $58,354 on Sunday.

Traders become cautious after Elon Musk expressed concerns over the weekend about Bitcoin prices rising too quickly. Sentiment was also dampened by remarks from US Treasury Secretary Janet Yellen, calling Bitcoin a highly speculative asset. Strategists at JPMorgan also warned about the crypto king’s declining liquidity.

Despite these concerns, the selloff on Monday and earlier today may have been the typical profit-taking that follows a spike in the price of any asset. The world’s most popular cryptocurrency tumbled to one-week low levels of $47,400 on Monday. At one point, Bitcoin lost approximately 17% of its value, wiping off around $160 billion from its overall market capitalisation. Bitcoin’s market valuation tumbled to around $983 billion on Monday, after surpassing $1 trillion on Friday.

Bitcoin’s peer Ethereum also recorded sharp losses on Monday, tumbling to its lowest level in three weeks, after hitting an all-time high on Saturday.

What to watch: Markets will keep an eye on Elon Musk’s tweets related to Bitcoin. Prices could remain under pressure today, even after declining by around 7% in the last 24 hours at 5pm GMT

The Markets Today

     

US stocks will be in focus today, ahead of the testimony from Federal Reserve Chairman Jerome Powell.

Context: Wall Street closed mostly lower on Monday, with the Nasdaq 100 recording sharp losses, following the continuous rise in bond yields.

Details: The rapid increase in US Treasury yields in recent weeks attracted investment dollars away from the stock market. This exerted pressure on big tech stocks, especially the MAGA stocks (Microsoft, Apple, Goole-parent Alphabet, and Amazon). Shares of Tesla also lost around 8.5% on Monday, following a 4% decline in the previous week.

The 10-year Treasury yield surged 14 basis points to 1.34% last week, nearing its strongest level since February last year. The benchmark yield also climbed to a high of 1.37% but settled at 1.364% on Monday. The benchmark rate has added around 25 basis points so far this month.

“This move in yields should be something that investors keep a close eye on,” said Matt Maley, chief market strategist at Miller Tabak. “Just because long-term rates are ultra-low on a historical basis, we do not believe that they will have to rise as far as most pundits think they do.”

Airline stocks rose on Monday after analysts at Deutsche Bank upgraded their ratings for various airline firms. American Airlines added more than 9% on Monday.

The S&P 500 shed 0.77% on Monday, notching losses for a fifth consecutive session with sharp declines in technology and consumer discretionary stocks. The Nasdaq 100 was the worst performing index, losing 2.6% to reach 13,223.74.

The Dow Jones index continued to buck the trend, even after shedding around 200 points earlier in the session. The 30-stock index rose 0.09% to close at 31,521.69, with gain being largely driven by a spike in Disney shares.

The ECB President Christine Lagarde said that the central bank was “closely monitoring the evolution of long-term nominal bond yields.” European stocks cut back early losses following comments from the ECB president.

What to watch: All eyes will be on Fed chief Jerome Powell’s semi-annual testimony before the Senate Banking Committee today. Markets will focus on Powell’s comments on inflation and interest rates, which could determine the direction of the stock market in the coming days.

Investors also await a basket of economic data from the US, including the S&P Case-Shiller home price index, FHFA house price index, and Richmond Fed manufacturing index. The S&P CoreLogic Case-Shiller 20-city home price index is projected to rise by 9.9% year-over-year in December.

Rising covid-19 cases remain a top concern for markets, with total infections exceeding 28.1 million in the US.

Other Markets: European trading indices closed lower on Monday, with the FTSE 100, German DAX 30 and French 40 down by 0.18%, 0.31% and 0.11%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

South Africa’s leading business cycle indicator and unemployment rate, UK’s claimant count change, unemployment rate, employment change, labour productivity and CBI distributive trades, Italy's industry sales and new orders for industrial goods, Eurozone’s inflation rate, Argentina’s retail sales as well as the US Redbook index.

 

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