Tuesday, January 12, 2021

Bitcoin Records Sharpest Plunge Since March

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News shaping
the markets today

     

What’s happening: Bitcoin prices plummeted more than 20% to below $31,000 on Monday after surging to record highs in the previous week.

What happened: Although Bitcoin moved sharply lower over Sunday and Monday to record its highest two-day decline since March, the crypto king is still more than 300% higher than its year-ago price.

Market sentiment was hurt by one of the biggest financial regulatory bodies in the world issuing a warning related to investing in cryptocurrencies.

Why it matters: Bitcoin prices jumped to fresh highs last week, breaching the $41,000 resistance level, driven by institutional buying and continued weakness in the US dollar. Various investment banks also touted prospects of significant gains in the cryptocurrency this year.

Prices of cryptocurrencies plunged sharply yesterday, wiping off around $140 billion in valuation from the market, which had climbed above the $1 trillion mark for the first time last week.

Investors booked profits following the surge in cryptocurrencies so far this month, amid rising political uncertainty. Investor risk appetite suffered a setback after House Democrats said they were looking to impeach US President Donald Trump following the attack on the Capitol last week.

Bitcoin prices were hurt by a rebound in the US dollar. The recovery in the greenback continued for the fourth session yesterday, exerting pressure on crypto prices, which tend to trade in the opposite direction to the US dollar. The US dollar index, which measures the greenback’s performance versus a basket of major currencies, climbed to a three-week high after, after hitting a 33-month low last week.

The UK’s Financial Conduct Authority, which operates independently of the country’s government, warned traders of high volatility in the crypto market.

Ethereum, the second-biggest cryptocurrency in terms of market value, also recorded a decline of more than 11% on Monday. The currency’s prices traded close to $1,128 after hitting a three-year high of around $1,350 last week.

What to watch: Markets will keep an eye on the impeachment process against Trump for provoking the attack on the Capitol. However, following the sharp downturn in Bitcoin prices yesterday, a rebound may be expected today. Bitcoin was traded higher at around $34,360 during the Asian session this morning.

The Markets Today

     

Gold will be in focus today after recording modest gains in the previous session.

Context: Gold prices closed higher on Monday, as traders bought the safe-haven metal following a sharp decline on Friday.

Details: The gains for the yellow metal came despite the US dollar’s continued recovery in the previous session, which is likely limited upside in gold prices today.

The ICE US Dollar Index traded higher by 0.4% on Monday, while US stocks pulled back after hitting record highs last week. The Dow Jones index closed down 0.29%, while the Nasdaq 100 recorded a decline of 1.55% on Monday.

Precious metal prices ended significantly lower last week with the US indices hitting record highs. Gold fell by around 3.2% during the week, while silver recorded a weekly decline of 6.7%.

Rising restrictions around the world following a resurgence of covid-19 infections is expected to support gold prices in the near term. The US recorded an average of 254,866 cases per day last week.

Gold for February delivery gained 0.8% to end at $1,835.40 an ounce on Monday, a session after the metal recorded its sharpest one-day decline in terms of percentage since early November.

Meanwhile, March silver spiked 2.6% to settle at $25.284 an ounce on Monday, following its biggest single-day percentage decline since September 21 in the previous session.

In other metals, copper prices dipped around 3% to close at $3.5645 a pound in the previous session, notching its biggest daily decline since October 1.

What to watch: Markets will keep a close eye on rising covid-19 cases, which is likely to determine the future movement of gold prices. Total cases worldwide have reached almost 91 million. Gold dipped by around 0.2% to $1,847 an ounce during the Asian session.

Other Markets: European trading indices closed lower on Monday, with the FTSE 100, German DAX 30 and French 40 down by 1.09%, 0.80% and 0.78%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Italy’s retail sales, South Africa's manufacturing production, Brazil’s consumer price index, India’s industrial production, retail price inflation and manufacturing production, Mexico’s gross fixed investment, Russia’s inflation rate as well as the US NFIB small business optimism index, Redbook index, job openings, IBD/TIPP economic optimism index and API’s crude oil stocks.