If you can’t trade Bitcoin, look to USD / RUB!
Bitcoin has had a ton of volatility lately. There are a number of reasons why the cryptocurrency could have sold out lately:
- China cracks down on Bitcoin (India has already banned it)
- Elon Musk sent a tweet
- US companies have been hacked (presumably by Russian hackers)
- The US government recovered a Bitcoin ransom
- IRS calls on Congress to regulate crypto
The reason doesn’t really matter. All we know is that Bitcoin has gone down and based on technical analysis it looks like it could go down.
After setting up a rounded top formation in the first 4 months of 2021, Bitcoin started to decline and around the second half of May. The price then began to consolidate in a pennant formation near the 50% retracement level from the March 2020 lows to the April 14 highs between 35,000 and 40,000. On June 7, Bitcoin fell below the rising trend line of the pennant. The target of a flag is the length of the “pole” of the flag, added to the break point of the flag. In this case, the target is near 6,700. However, if the price moves towards the target, it must first break through the May 19 lows of 30,066, the 61.8% Fibonacci retracement level. of the aforementioned period, near 27,169, and the former long-term resistance level (now a support level) at 19,666.
USD / RUB
The USD / RUB has been trading sideways in a symmetrical triangle since the start of the pandemic in March 2020. After a brief false breakout below the lower trendline of the triangle in mid-March of this year, the price has rebounded at 61.8% Fibonacci retracement level. from November 2, 2020 highs to March 2021 lows near 77.75 and formed a head-and-shoulders pattern. In early May, the USD / RUB crossed both the short-term head and shoulder neckline, the lower ascending trendline of the longer-term symmetrical triangle, and the 200-day moving average, between 74 , 80 / 75.35. On June 8, the price broke through the March 16 lows near 72.53 and appears to be on its way to the head and shoulders target of 71.50. Below there is horizontal support as of June 2020 near 70.55.
As discussed in our recent webinar, according to Investopedia, the correlation coefficient is a statistical measure of the strength of the relationship between the relative movements of 2 variables. Values range from -1.0 to +1.0. If the value is greater than 0.00 it means that the 2 values are positively correlated. A reading of +1.00 shows a perfect positive correlation, or that the 2 variables are moving in the same direction. A reading of -1.00 shows a perfect negative correlation, or that the 2 variables are moving in opposite directions. The closer the reading is to +/- 1.00, the greater the correlation. A reading of 0.00 means that there is no correlation between the 2 variables.
The bottom of the chart above shows the correlation coefficient for Bitcoin and USD / RUB over a daily period. The current value is +0.83, which means that the correlation between the 2 variables (or assets) is strong. On a daily basis, as Bitcoin declines, USD / RUB also declines. Therefore, if one believes that Bitcoin will continue to fall, there is a high probability that the USD / RUB will fall as well. However, as you can see, the correlations change over time. Most of the time before the end of April, the correlation was negative!
Note that over the 240-minute period below this, the correlation is currently +0.85, stronger than the daily period. Therefore, it can also be traded on this shorter period. However, also note that the RSI on the USD / RUB 240min chart is extremely oversold, near 21. The price may be due to a rebound towards the lower trendline of the corner above near 72.67, which acts as the first level of resistance. There is also horizontal resistance just above at 72.75. Above there resistance is at the top, the descending trendline of the corner near 73.40.
Bitcoin and USD / RUB currently have a strong positive correlation. Therefore, if one is looking to trade Bitcoin, but cannot, USD / RUB can currently be a good substitute. If Bitcoin is currently believed to rise, the USD / RUB should follow it higher most of the time. If Bitcoin is currently believed to fall, the USD / RUB should follow it lower over time.
Note that the correlation coefficient will not tell you the magnitude of the movement, only how strongly the direction is related between the 2 variables. Plus, correlations change over time and over different time periods, so be sure to pay attention to see if that changes!