The BTCEUR cryptocurrency pair was on a tear between October 1 and October 20, mainly due to the anticipation of the Bitcoin Gold fork that happened on Tuesday. Since investors holding Bitcoins would receive the new cryptocurrency Bitcoin Gold on a 1:1 basis, investors were chasing Bitcoin thereby taking its market capitalization to $100 billion. However, following the initiation of the hard fork, Bitcoin had fallen by about €400 to trade at €4,632. We expect the BTCEUR to continue its downtrend due to the reasons given below.
The hard fork initiated by Chinese miner Jack Liao on Tuesday, with an aim to narrow the gap between ASIC mining and GPU/CPU mining, has created further division among the leading players in the crypto currency industry. Several Bitcoin exchange and wallet community have decided not to support Bitcoin Gold.
Sol Lederer, the director of the blockchain, has pointed out that different versions of Bitcoin will be certainly confusing to new users and will genuinely create doubts about the claim that the number of Bitcoins that are available for mining is limited. With few more hard forks expected before the end of the year, investors would certainly assess the pros and cons before staying invested.
Furthermore, the Bitcoin Gold fork lacks replay protection. Without such a crucial facility, Bitcoin holders will not receive their share of Bitcoin Gold, as it would put the existing Bitcoins at risk. The team behind Bitcoin Gold had assured the crypto currency community that they would integrate the replay protection. However, their codebase is not ready.
Further, the codebase of Bitcoin Gold has not been certified by an independent auditor. Unless the replay protection is added, investors would stay away from Bitcoin. Such a scenario could certainly affect the price of Bitcoin. While the hard fork has temporarily created a bearish view of Bitcoin, the Euro is buoyed by an overwhelmingly positive business sentiment in Germany.
The German business confidence hit an all-time high in October, according to the Institute for Economic Research. The business sentiment index rose to 116.7, from 115.3 in September. The index reading is based on a survey of about 7,000 firms. Ifo also pointed out that capital goods manufacturers and mechanical engineering enterprises were optimistic about the future. Thus, economic data favors a rally in the Euro, while the negative sentiment caused due to the hard fork of the Bitcoin network is expected to keep the cryptocurrency weak in the short term.
The BTCEUR pair has started declining after facing resistance at 4930. The momentum indicator is also making a negative divergence with the price. Thus, we expect the crypto currency to decline in the short-term. On the downside, the next major support exists at 4119.
To benefit from the decline of the crypto currency pair, in the binary market, we wish to invest in a put option valid for a week. A strike price of about 4920 is preferred for the trade. The option should be preferably active for a week.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
