● Bitcoin, Ethereum hover around 2021 lows before the month’s close
● USD Breaks Out Downward Trend
● Retail traders on Reddit drive Stock Market Frenzy
Hello and welcome to today’s edition of Overbit Weekly Round Up. Today’s edition will be the final one in January, meaning we are about to close out the first month in the new year. January is often a transitional period for many investors and traders as they evaluate and rebalance their portfolios for the new fiscal year, so now is a great time to look back on your performance and determine where you want your focus going forward.
That being said, we’ll start off today with a look at the cryptocurrency markets. As we’ve previously written, these markets have cooled off tremendously in the recent weeks versus the end of last year. Bitcoin has fared much worse since its high at $42,000, as it tested the $29,000 level again on Wednesday, 27 January. BTCUSD has yet to make a new low within this range, though each bounce from this range appears much weaker, which is reminiscent of the $6,000 floor back in 2018 before it broke to $3,000.
Contrary to Bitcoin, Ethereum has just recently made new highs as recently as 24 January, as it lagged behind Bitcoin to start the year. Even more impressive is the series of higher-lows and higher-highs being made on Ethereum since the start of January, although with quite volatile swings in-between. As we said, Ethereum has fared much better than Bitcoin thus far this year. However, it still seems that Bitcoin drives the show for most of the cryptocurrency markets, so expect more downward consolidation until bulls take back over with Bitcoin.
For our next story of the day, we take a look at the US dollar, which still seems to be the asset driving price action across the board in financial markets.
As we have covered extensively in issues in months’ past, the US dollar has been a macro bearish downtrend for almost a year now, dating all the way back to when the pandemic first took hold in March 2020. Since then, the dollar index (DXY) has fallen like a rock from 102.936 to 89.209 - a drop of almost 14%, which is quite substantial by forex standards.
However, since the start of January, the US dollar seems to have found a bottom, at least temporarily. The DXY currently sits at 90.727, where it appears to be consolidating for at least one more leg up. According to MarketWatch, this has had a sizeable impact on commodities like silver and gold, with XAUUSD in the red for five consecutive sessions dating back to Thursday, 21 January. This would also help explain the recently bearish performance of the cryptocurrency market, which is typically inversely correlated to the dollar as we have previously reported.
Nevertheless, it seems to be another time in the market for all-eyes on the US dollar. Until its current consolidation is resolved, expect more volatility and possible downward price action in markets like commodities.
Closing out our last story of the week is a story that’s barely a few days old yet is already becoming infamous in the financial world - the ongoing short squeeze of GameStop.
Over the last few days, speculators mostly driven by the Subreddit r/WSB (Wall Street Bets) have been wreaking havoc on the US Stock Market by continually applying buying pressure to a massively shorted stock, GameStop. This has caused the GameStop stock to rally hundreds of percentage points, from $5 to as high as $300.
This stock first came onto people’s radar over the summer when legendary investor Michael Burry from the movie “The Big Short”, revealed he had a position in the company GameStop traded on Nasdaq under the GME ticker.
Because of the Covid-19 pandemic and the world moving even-more online, Gamestop was seen as a brick-and-mortar company on its last legs before bankruptcy. However, with a recently replaced board and a new vision for the company, some investors saw otherwise.
What lit the fire underneath this stock is when people began to rally against the biggest short-selling hedge funds on Gamestop - Citron Capital and Melvin Capital Management. More and more people began to pile on, with even some big names like Elon Musk and Chamath Palihapitiya joining in on the fun by posting to social media about the stock and even buying up positions.
The end result was one of the largest short squeezes in modern history. Melvin Capital declares bankruptcy on 26 January, just one day after receiving a $2.7 billion capital injection from its parent funds.
It seems this wild ride may be coming to an end with Reddit and Discord banning the community, as well as prominent financial figures calling for this to stop, even proposing an indefinite hold on trading until major players can ‘recalibrate’ their positions. However, with this story spreading like wildfire in 48 hours, this may just be the start of a brand-new financial trend.
This has been quite a lesson learned for Wall Street, and investors alike to always hedge your position and practice risk management and be sure to check out Overbit.com.