The US benchmark indices, Dow Jones and S&P 500 lost more than 4% yesterday. Along with this, prices of gold also went down. However, Bitcoin rose from $6200 mark to $6700 mark. The sudden bitcoin price rise, when the market is falling down rapidly, could very well be a bull trap.
As the COVID-19 pandemic continues to haunt the world, people have started cashing out their equities which resulted in another major decline yesterday. While it was expected that the price of commodities like gold and silver would rise, the opposite happened.
So far, at the time of writing, more than 940,000 people have been confirmed to be affected by the virus. Approximately a quarter of these cases have been detected in the US, with more than 5000 deaths.
Why Bitcoin price rise might be a bull trap?
Today, investors are very scared to keep their money in the markets, especially when it continuously keeps on plunging, Commodities like gold, which are often considered as safe-haven assets have been declining too. On the other hand, so far, there is no cure for this pandemic and the resources are limited.
Bitcoin, itself was in a consolidation phase since the second week of March. It had tried to break off the resistance level of $6550 but wasn’t successful initially. Later, it jumped from $6200 to $6700 directly.
Prominent traders warned since late March that if the bearish market structure of Bitcoin continues, there exists a strong possibility that the entire move to the mid-$6,000 could be a large bull trap.
No sound principle behind the surge
Considering what the markets have been going through in the past couple of weeks and the unexpected bitcoin price rise of 5.5%, it is safe to say that there is no sound principle behind this surge.
All the indicators point towards a bull trap. In such cases, traders and investors often get on the ride hoping for profits but end up collecting massive losses for themselves.
The United Nations has already alerted that the world has now entered into the recession phase which is more brutal than the one that came 12 years ago.