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3 key factors predict Bitcoin price surge

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The price of Bitcoin (BTC) has increased by nearly 30% since late June, from $8,905 to just under $11,500 as of press time. Following the strong rally of the dominant cryptocurrency, three macro factors point at an optimistic medium-term trend. These macro factors hint at a positive medium-term to long-term price cycle but suggest that in the near term, momentum will fade and a consolidation phase will happen.

As Cathy Wood, CEO of Ark Invest, discussed on the In the Know podcast, there is technically little resistance between $13,000 and BTC’s all-time high of $20,000. Wood noted that BTC might see a new trading range between $10,000 and $13,000, which would establish a healthy consolidation phase:

“That $13,000 [level] is important because if we were to get through that, then in technical terms, there would be very little resistance and we would probably be on our way back to the peaks we saw in late 2017 — so, around $20,000. Now, we’re not sure if that is going to happen. We could stay in a new trading range, just at a little bit of a higher level than the recent six to 10. Maybe we’re in the $10,000 to $13,000 range. Nonetheless, a breakout.”

Whether Bitcoin remains in the $10,000–$13,000 range for an extended period remains uncertain. In the past three years, BTC has tended to consolidate throughout September to October and rally during mid-November. Considering the activation of the block reward halving on May 11, the probability of an uptrend in November to December remains high.

Fading dollar benefits Bitcoin

A persistent narrative around the long-term prosperity of Bitcoin is the decline of the United States dollar. In recent months, primarily due to the pandemic and the U.S. economy struggling to reopen, the dollar’s value has fallen against other reserve currencies.

On July 31, Lee Hardman, currency analyst at Mitsubishi UFJ Financial Group, said the sell-off of the dollar was “relentless.” According to Supriya Menon, multiasset strategist at Pictet Asset Management, various macro factors including the soaring number of COVID-19 cases and the uncertainty around the November presidential election were contributing to the dollar’s weakness.

Meltem Demirors, chief strategy officer of CoinShares, believes that periods of economic uncertainty and dollar weakness would likely benefit Bitcoin, like they do gold:

“So where does bitcoin sit in the economic cycle? during periods of economic uncertainty and dollar weakness, #Bitcoin is likely to benefit in the same way as gold. If bitcoin’s financialization continues, it will be unable to remain insulated from the financial system.”

Whether the falling momentum of the dollar has already had its full effect on the price of Bitcoin remains unclear. The U.S. dollar has already dropped to a two-year low, and in the near term, analysts anticipate a dollar recovery.

But two variables that could cause the dollar to drop further are low-interest rates and the European Union’s sizable stimulus package. The euro has outperformed the dollar in recent weeks, as investors found the EU’s 750 billion euro recovery fund compelling. Atop the aggressive fiscal policies of Europe, the U.S. economy’s path to recovery has not been strongly established. Patrik Schowitz, global strategist at JPMorgan Asset Management, noted:

“U.S. economic outperformance relative to the euro area and Japan (no longer) seems guaranteed, at least over the next few years, given the faltering virus response. […] The shrinking of its interest rate advantage makes the USD less appealing and pushes investors to consider deposits in other currencies. These cyclical factors won’t turn around in a hurry and the US dollar likely has room to fall further.”

The fading trend of the dollar coincides with the expectations of higher inflation rates in the intermediate term. If many perceive Bitcoin as a store of value and a potential hedge against inflation, Federal Reserve Chairman Jerome Powell’s upcoming speech could strengthen the image of BTC for the long term.

On Aug. 27, Powell is expected to deliver a speech at a virtual Fed conference and address soft inflation. For now, the markets are not counting on the Fed to lead significant changes on its fiscal policies. As such, even if the Fed says that it might let inflation rates run higher for a while, it might not have a profound effect on BTC.

Gold correlation

Possibly due to the falling dollar, gold and Bitcoin have seen a more correlated price cycle in recent months. According to data from Skew, Bitcoin and gold have rallied in tandem since mid-July and have similarly pulled back simultaneously since the first week of August.

There are several reasons Bitcoin and gold might be seeing similar price movements. First, through growing institutional activity, the public image of BTC as a store of value has strengthened. Investment firms, like Ark Invest, have cited the bulk Bitcoin purchase of $250 million by MicroStrategy as a symbolic strategy that could buoy the sentiment around Bitcoin over the longer term. Second, both Bitcoin and gold seemingly have demonstrated inverse correlation with stocks since the start of August.

Related: Bitcoin and Economic Uncertainty: Patience Is the Name of the Game

The similarities in the price cycles of gold and Bitcoin do not necessarily benefit BTC in the immediate future, but they hint that investors might be considering BTC more as a store of value and a safe-haven asset than as a risk-on asset such as single stocks.

Long-term macro metrics

Various on-chain macro metrics suggest that Bitcoin is seeing an extended accumulation phase, where investors are increasingly purchasing BTC with the intent of holding. Grayscale, a cryptocurrency-focused investment firm with $5.9 billion in assets under management, found that the number of BTC held for over a year has increased substantially.

Citing data from Glassnode, cryptocurrency market analysis firm Unfolded said that the number of Bitcoin addresses holding more than $11 million hit a new all-time high. The trend shows that more large-scale investors are accumulating BTC, likely with a longer-term investment thesis and the intent to “HODL.”

Generally, most on-chain data and macro factors point toward a high probability of a Bitcoin bull market entering 2021. In the short term, there are several risks in market structure that could prevent an early breakout. The most prominent roadblock in the short-term price cycle of BTC is likely the heavy $12,000–$13,000 resistance range, which marked the peak of previous attempts to break out of $14,000.

The confluence of the likelihood of Bitcoin to see low volatility in September and October and the repeated rejection of $12,000 could slow the momentum of BTC in the near term. But over the medium term to long term, especially approaching late November to December, there are an abundance of macro factors that could strengthen the case for a Bitcoin price upsurge.





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China’s attempt to kill Bitcoin failed — Here are 3 reasons why

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Bitcoin (BTC) might have suffered its largest coordinated attack over the last couple of months, but in this instance, the investor community did not capitulate. China outright banning mining in most regions after giving BTC miners a two-week notice and this caused the single largest mining difficulty adjustment after the network hash rate dropped 50%.

The market sentiment surrounding Bitcoin was already damaged after Elon Musk announced that Tesla would no longer accept Bitcoin payments due to the environmental impact of the mining process. It remains unknown whether China’s decision was influenced or related to Musk’s remarks, but undoubtedly those events held a negative effect.

A couple of weeks later, on June 16, China blocked cryptocurrency exchanges from web search results. Meanwhile, derivatives exchange Huobi started to restrict leverage trading and blocked new users from China.

Finally, on June 21, the People’s Bank of China (PBoC) instructed banks to shut down the bank accounts of over-the-counter desks and even their social networks accounts were banned. OTC desk essentially act as a fiat gateway in the region so without them it would be difficult to exchange from Bitcoin to stablecoins.

As these events unfolded, some analysts were reluctant to describe the tactics as nothing other than meaningless FUD, but in hindsight, it appears that China launched a very well-planned and executed attack on the Bitcoin network and mining industry.

The short-term impact could be considered a moderate success due to the collapse in Bitcoin price and the rising concerns that a 51% hashrate attack could occur.

Despite the maneuvers, China’s attack ultimately failed and here are the main reasons why. 

The hashrate recovered to 100 million TH/s

After peaking at 186 million TH/s on May 12, the Bitcoin network hash rate, an estimate of the total mining power, started to plunge. The first couple of weeks were due to restrictions to coal-powered areas, estimated at 25% of the mining capacity.

However, as the ban extended to other regions, the indicator bottomed at 85 million TH/s, its lowest level in two years.

Bitcoin estimated hashrate. Source: Blockchain.com

As the data above indicates, the Bitcoin network’s processing power recovered to 100 million TH/s in less than three weeks. Some miners had successfully moved their equipment to Kazakhstan, while others shifted to Canada and the U.S.

Peer-to-peer (p2p) markets carried on

Even though the companies involved in crypto transactions have been banned from the country, individuals continued to act as intermediaries—some of these recorded over 10,000 successful peer-to-peer transactions according to data from the exchange’s own ranking system.

Huobi Global peer-to-peer market advertisement. Source: Huobi

Both Huobi and Binance offer a similar marketplace where users can trade multiple cryptocurrencies including USD Tether (USDT). After converting their fiat to stablecoin, transacting on a regular or derivatives exchange becomes possible.

Asia-based exchanges still dominate spot volume

A complete crackdown on trading from Chinese entities would likely be reflected in the exchanges previously based on the region, like Binance, OKEx, and Huobi. However, looking at the recent volume data, there hadn’t been a meaningful impact.

Weekly spot volume, USD. Source: Cryptorank.io

Take notice of how the three ‘Asia-based’ exchanges remain dominant, while Coinbase, Kraken, and Bitfinex are nowhere near their trading activities.

China’s ban on Bitcoin mining and transactions may have led to some temporary hiccups and a negative impact on BTC price, but the network and price have recovered in a way that is better than many expected.

Currently, there is no way to measure the OTC transactions where larger blocks are traded but it is just a matter of time until these intermediaries find new gateways and payment routes.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.