As the weekly close approaches, Bitcoin price dropped out of the ascending channel to $8,840, marking six consecutive lower highs since June 2019.
A confluence of miners selling more BTC than they mine, Bitcoin recording 6 consecutive lower highs, and the retest of the $8,800 support leaves BTC vulnerable to a severe pullback.
Six consecutive lower highs since June 2019
As shown on the daily chart, since June 19 Bitcoin has recorded six consecutive lower highs. The price rejected at $14,000, $13,300, $12,300, $10,600, $10,500, and $10,000, making every local top lower than the previous peak.
In technical analysis, lower highs indicate that buyers are failing to establish a new bull cycle. Every time a lower peak is reached, it shows the selling pressure in the market is simply too strong to break out of it.
Bitcoin records six consecutive lower highs since June 2019. Source: Tradingview
A clear rejection of the $9,800 to $9,900 range and the projected third test of the $8,800 support level suggest Bitcoin is not ready to initiate a rally above $10,000 just yet.
Triple test of $8,800
The price of Bitcoin rebounded at $8,840, testing the $8,800 support area for the second time within four days. Typically, the digital asset tends to break down below a heavy level of support in the third or fourth touch. This means, BTC is likely to see a clean breach of $8,800 upon the weekly close.
Almost immediately after dropping close to $8,800, the price of Bitcoin rebounded to around $8,900, showing BTC is set for a short-term price spike following the weekly open on May 25.
But, data from TradingLite shared by cryptocurrency trader Hsaka shows a significant amount of sell orders on OKEx in the $9,300 to $9,400 range.
OKEx shows large sell orders at $9,300. Source: Hsaka
Based on the firm response of buyers at the $8,800 support level and selling pressure at $9,300, BTC is likely to remain in between the $8,800 to $9,300 range before seeing the next pullback.
If the price of Bitcoin rebounds in the short-term to the low-$9,000 region and revisits $8,800, the probability of BTC seeing a much larger correction to the $6,000 to $7,000 range increases.
Bitcoin miners are applying selling pressure
Bitcoin miners are continuing to sell more BTC than they mine. Such a trend is understandable given that the breakeven cost of mining BTC is above $12,000 following the May 11 halving.
The price of Bitcoin is nowhere close to $12,000 and this means miners will have to sell a portion of their existing supply to cover operational costs.
As cryptocurrency investor Willy Woo explained, there are two unmatched sellers in the Bitcoin market: miners and exchanges. Woo said:
There’s only two unmatched sell pressures on the market. (1) Miners who dilute the supply and sell onto the market, this is the hidden tax via monetary inflation. And (2) the exchanges who tax the traders and sell onto the market.
Bitcoin Miners Rolling Inventory Above 103%. Source: ByteTree
As shown by the chart above, the Miner’s Rolling Inventory (MRI) is above 103%, which means miners are spending more BTC than usual. This means the selling pressure coming from miners will continue to remain a threat to the recovery of BTC in the short-term.
On March 12, 2020, during the infamous “Black Thursday,” the price of Bitcoin (BTC) dropped to as low as $3,600 across major exchanges. Now, analysts believe the intense correction will benefit the dominant cryptocurrency in the coming months.
After a block reward halving, the price of BTC tends to drop. In the previous two halvings in 2012 and 2016, Bitcoin saw a similar trend.
A Bitcoin halving immediately decreases the amount of BTC miners can generate by using computing power and mining equipment. A halving can lead to a drop in price as miners sell existing BTC to cover imminent operational costs.
This time around, the projected decline in the price of Bitcoin may not be as intense.
Why Bitcoin may not see a big post-2020 halving correction
The third halving in the history of Bitcoin was activated on May 11. Following the halving, the price of BTC slightly declined and technical analysts generally anticipate a sizable pullback in the short-term.
There are two main reasons that support the argument of a less severe Bitcoin correction following the halving: less capitulation of miners and the March 12 drop of BTC.
According to data shared by Capriole market researcher Charles Edwards, the hash rate of Bitcoin has been leading its price down in the past week.
The difference between the 2020 and 2016 halving, however, is that the capitulation of miners is not as strong as four years ago.
“2016 and 2020. Spot the difference? There isn’t one, except the start of the capitulation this time (falling Energy Value) isn’t as extreme, likely due to the March 12 flush out. Another example of Hash Rate leading price down.”
Miners are not shutting down their mining equipment as fast as they did in previous halvings due to the price trend of BTC.
Weeks before the May 11 halving, the price of Bitcoin was hovering at around $6,000. If BTC remained in the $6,000 to $7,000 range, it would have increased the probability of a more severe capitulation of miners.
The decline in the price of Bitcoin to the $3,000s in mid-March can be another catalyst that prevents a large correction in the near-term.
The so-called Black Thursday wiped out most long and short contracts in the Bitcoin futures market. It led to the spot and institutional market accumulating BTC over a two-month span, which creates a stronger foundation for a renewed rally.
There are variables, though
The halving ended, but its effect on miners is still real. If the price of Bitcoin does not increase in the upcoming weeks, miners will be operating with a substantial loss.
Estimates place the cost of mining after the halving at around $12,500 at the lowest.
The TradeBlock team wrote:
“The gross cost to mine one bitcoin at projected levels following the halving would be $15,062. If we adjust our assumption on hash rate, and assume hash rate stays nearly flat from current levels then the cost to mine one bitcoin would fall to $12,525.”
Given that the price of Bitcoin is now just hovering over $9,000, it would lead to a $3,000 loss per BTC for miners. The discrepancy between the cost of mining and the cost to mine BTC may cause miners to sell more BTC.
The post Unlike 2016, analysts say Bitcoin won’t see a brutal post-halving crash for 2 reasons appeared first on CryptoSlate.
Traders fear Bitcoin could be entering a new bearish trend after the price dropped below $9,000 earlier today.
The price of Bitcoin (BTC) dropped to as low as $8,900 on May 21 following a strong rejection of the $9,800 level. Traders say BTC’s breakdown from the $9,200 support level may lead to a renewed downtrend.
Almost every macro indicator points to a correction
In the near-term, traders generally expect that a correction will occur in the Bitcoin market. Almost every macro trendline, indicator, and momentum oscillator points toward an imminent correction.
When the price of Bitcoin initially dropped below $9,200, it fell under a key Bollinger Band line, which often marks a key pivotal point. If a bullish trend is ongoing, then an asset is expected to recover at the middle Bollinger Band line.
BTC USD daily chart. Source: Big Chronis Trading
But, in the case of Bitcoin, it fell straight through it and dropped to $8,900 in quick succession. As such, it risks a fall to the lower end of the Bollinger Band, in the mid-$8,000 area.
According to Bitcoin trader Jonny Moe, the Bitcoin price is at risk of falling below another trendline that dates back to March 12.
Since the second week of March, the price of Bitcoin recovered strongly from $3,600 to over $10,000. After failing to reclaim the $9,800 to $9,900 range as support, BTC is now vulnerable to a deep pullback below the rising channel.
BTC USD daily chart. Source: Jonny Moe
If the price of Bitcoin closes under $9,000, Moe said that the $6,500 to $7,300 range is the likely next support for Bitcoin.
Bitcoin trader TraderXO, who predicted a fall to $7,700 as early as last week, said BTC is showing a typical lower high set up and is at risk of a rapid correction to below $8,000.
Lower highs on the 4-hour chart of Bitcoin. Source: TraderXO
Why traders are bearish at the current level
There are two main reasons that supplement the bearish stance of many top traders in the cryptocurrency market: the lack of support between $7,700 and $9,000, and the potential upside of BTC above $10,500.
Bitcoin barely saw a minor pullback when it surged from $7,700 to $10,000. While it demonstrates the strength of BTC’s momentum at the time, it also leaves BTC vulnerable to a sizable decline.
The lack of resistance above $10,500 is also considered a factor that is preventing BTC from breaking above $10,000.
While there is little resistance above $10,500 to major levels like $12,500 and $14,000, there exists strong overhead resistance in between $10,000 and $10,500.
In April hedge fund manager Mark Dow said that Bitcoin is a textbook short, even when BTC was in the $6,000s. Dow said:
Bitcoin on the chart is facing massive overhead resistance. Based on this chart, this right now is a textbook opportunity to short.
The confluence of heavy resistance in the $10,000 to $10,500 range and the lack of support in between $7,700 to $9,000 increases the probability of a BTC price drop to the $7,000 zone.
The price of Bitcoin fell from $9,800 to $9,200, and it was most likely caused by five key factors.
The price of Bitcoin (BTC) fell from $9,800 to as low as $9,200 on major exchanges overnight. It comes after BTC demonstrated relatively low volatility in the past week, ranging in between $9,900 and $9,500.
The sudden short-term price drop can generally be attributed to five major factors: a cascade of liquidations on BitMEX, whales seeking liquidity at near support levels, an uptick in miner selling and the rapid growth of the options market.
Cascading liquidations on BitMEX
In the last 18 hours, around $53 million worth of longs were liquidated on BitMEX alone. It indicates traders were largely expecting the price of Bitcoin to reclaim the $10,000 resistance level in the near-term.
Instead, the price of Bitcoin rejected $9,800 with a heavy sell-off, taking BTC down to around $9,300 initially within a span of an hour.
Total Bitcoin liquidations in the last three days. Source: Skew
There is a high level of selling pressure in the high-$9,000 area because traders are actively moving to hedge their positions in case of a deep pullback.
Cryptocurrency trader Koroush AK wrote:
For the past week we've been bouncing between ~$9850 and ~$9250 with slight deviations. Good levels to play if you like a good range. $9850 is preceded by several HTF resistances but after ~$10500 we should see fireworks. Should $9250 break I expect mid $8000s.
In April 2020, it took around 38 days for Bitcoin to rally from $5,800 to $7,700. But, it took less than 9 days for Bitcoin to surge from $7,700 to $10,000.
Comparison of Bitcoin price action from $5,800 to $7,700 and $7,700 to $10k. Source: Tradingview
Technically, there is little resistance or support between $7,700 to $9,100. Traders are seemingly cautious about a further downtrend because of the weak technical structure between the price range.
Whales using the false Satoshi narrative to seek liquidity
As Cointelegraph extensively reported on May 20, an individual moved 50 BTC from a wallet that dates back to February 2009.
The 50 BTC was mined merely one month after the first Bitcoin block was mined, causing people to speculate if it was Satoshi Nakamoto.
But, from the absence of a Patoshi pattern to the existence of several early miners in 2009, almost all data points showed the sender was not Satoshi.
The lackluster data did not stop whales from using the narrative to stir up volatility in the market. As soon as the transaction was publicized, the price of Bitcoin dropped by 5% almost immediately. Whales were most likely adding selling pressure to take liquidity at low support levels.
An uptick in miners selling
According to data from ByteTree, the Miner's Rolling Inventory (MRI) is at 102.8%. If the MRI crosses around 80%, it shows miners are selling the BTC they mine, rather than holding onto it.
Miners sell BTC while on-chain data shows Bitcoin is overbought. Source: ByteTree
On May 20, the day the price of Bitcoin fell to $9,200, the net inventory of miners was -187 BTC. Given that miners mine up to 900 BTC post-halving, they sold more than they mined on the day.
The recent trend of miners selling more BTC than before the halving occurred on May 11 may add persistent selling pressure on BTC throughout the near-term.
Rising USDT withdrawals
On-chain data from Glassnode shows the number of Tether (USDT) exchange withdrawals reached an all-time high.
Tether is widely utilized as an alternative to digital cash, especially in regions with restrictive access to the cryptocurrency exchange market, such as China.
Outflow of Tether (USDT) from cryptocurrency exchanges. Source: glassnode
The outflow of Tether from exchanges suggests two things: the number of sellers in the market is on the rise and the number of Chinese buyers may be on the decline.
“USDT Number of Exchange Withdrawals (1d MA) just reached an ATH of 2,083.37. Previous ATH of 2,075.792 was observed on 30 April 2020.”
The options market is expanding, fueling volatility
The Bitcoin options market is expanding at a rapid rate, with Deribit reaching a billion dollars in open interest.
Unlike futures and spot prices that are relatively easy for both long-time traders and beginners to navigate, options contracts are conceptually more complex than the two. As such, options appeal to professional and full-time traders over casual traders.
With options being one of the three big markets alongside spot and futures, the volatility of BTC and the diversity of investors within the market is increasing. In the near future, the options market is likely to have more impact on the price trend of BTC.
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The drop-off in Bitcoin mining revenue to 2019 levels show a macro bottom for BTC is near as the impact of the halving is starting to be felt.
The revenue of Bitcoin (BTC) miners dropped to early 2019 levels for the second time in 2020. Every time it declined to a multi-year low, it marked the start of a bullish trend for BTC.
The last time the daily revenue of Bitcoin miners hovered at around $7 million was on March 13, 2020. At the time, the price of BTC dropped to as low as $3,600 on BitMEX following a cascade of more than a billion dollars in long contracts.
After mining revenue plunged on March 13, the price of Bitcoin rose from $3,600 to over $10,000 with a 177% gain over the next month and a half.
Bitcoin miners revenue drop to early 2019 levels. Source: Blockchain
Bitcoin may see a similar trend in the coming months
When Bitcoin mining revenue falls steeply, it indicates that over-leveraged miners are capitulating due to unfavorable market conditions.
From March 12 to March 13, the mining revenue declined as a result of a 50% drop in the price of Bitcoin in a span of 24 hours. This time, the drop-off is seemingly caused by the effect of the Bitcoin halving on the mining ecosystem.
Before the halving, miners were generating about 1,800 BTC per day in revenue. Today, miners are expected to make around 900 BTC per day.
But the price of Bitcoin is currently at a similar level as where it was before the halving was activated. For small or over-leveraged miners, the stagnancy in the price of Bitcoin following the halving is enough to cause a temporary halt in their operations.
Typically, this marks a bottom for Bitcoin because it indicates a peak level of fear in the market. Some unprofitable miners are shutting down while BTC is stagnant. Therefore, Bitcoin could see short-term volatility as on-chain data suggests the generational bottom before a new bull cycle is seemingly being established.
Other macro indicators also flipping bullish
The Puell Multiple, a macro indicator that uses the daily issuance of BTC to measure the trend of the market, shows that BTC is close to its bottom.
A macro indicator shows Bitcoin is nearing a bottom. Source: Lookintobitcoin
While the Puell Multiple suggests there may be another minor pullback in the short-term, it is showing a 2018-esque trend wherein BTC is gearing towards a bullish trend as seen in early 2019.
From early to mid-2019, the price of Bitcoin rose from $4,000 to $14,000, and various on-chain data suggests BTC is now showing similar signs.
Technical indicators such as the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) for large time frames also show that BTC is nowhere near the top following a 160% price spike.
Bitazu Capital founding partner Mohit Sorout said:
“Notice how major BTC cycle top & bottoms were printed against the backdrop of peak volatility? Simple look will tell you $10k is a small hiccup.”
Volatility index shows Bitcoin is not at a local top. Source: Mohit Sorout
The price of BTC nearly tripled since March 13 from $3,600 to $10,085 and yet, historically accurate indicators are not showing a top-like structure for BTC.
Most likely an old miner from 2009 — not Satoshi — just moved 50 BTC mined merely one month after the first Bitcoin block was mined.
Someone, whose identity cannot be unraveled, has sent 50 Bitcoin that was mined back in February 2009 to two different wallets. Considering that the first block of Bitcoin (BTC) was mined in January of the same year, it narrows down the individual to either Satoshi Nakamoto himself or a few other miners who were present at the time.
50 BTC mined in February 2009 moves. Source: Blockchair
It is highly unlikely that Satoshi himself moved the 50 BTC for various reasons. The most obvious evidence that disproves it is Satoshi is the Patoshi pattern. Early blocks that the creator of Bitcoin mined can be identified with a piece of data called “nonce.” Casa CEO Jameson Lopp told Cointelegraph in an interview:
“It doesn’t look like these coins match the Patoshi pattern. The block, in which they were mined, had an extraNonce of 477. A Patoshi pattern mined block at that height would be expected to have an extraNonce higher than 2,367.”
Similarly, Nic Carter, a co-founder of Coinmetrics, said: “It’s basically impossible to prove that Satoshi didn’t mine these coins, but the best research we have suggests that Satoshi mined a specific set of blocks, of which this is not one.”
Even in 2009, Lopp explained that there were several other miners apart from the dominant one, who is speculated to be Satoshi. Hence, it could be an unknown miner who moved the 50 BTC as Lopp explained:
“Contrary to popular belief, there were several miners in those first few months of Bitcoin it’s just that the dominant miner — who many assume to be Satoshi — had a ton of the hash rate.”
Bitcoin’s price initially fell from around $9,900 to $9,300, as the market first reacted to the transaction. However, as more information about the intricacies of the transaction was uncovered, it reduced the probability of the sender being Satoshi. Shortly thereafter, Bitcoin’s price recovered.
Given that it was likely one of the early miners who was experimenting with BTC in 2009 who sent the 50 BTC and not Satoshi, the market seemingly believes that the miner had enough appealing reasons to send BTC from an old wallet, risking privacy-related issues as it gets publicized.
Low nonce decreases the probability of the sender being Satoshi. Source: Jimmy Song
Lost hard drive recovery, privacy and asset diversification
When there were a limited number of services and platforms that allowed users to keep Bitcoin safely in a non-custodial manner, many users and miners kept their BTC in hard drives or external storage.
Since some miners pushed through and mined thousands of blocks and others stopped at just several, it is entirely possible that an old-time enthusiast found a hard drive dating back to 2009 and decided to move the BTC or sell it. Lopp noted in a conversation with Cointelegraph:
“Could be a million possible reasons. Maybe someone found a lost hard drive. Maybe someone needed to make a super-private transaction, so they used freshly mined coins. Maybe it’s just someone diversifying their assets.”
As such, the miner may have found an old hard drive containing about $490,000 worth of BTC and decided to diversify the assets for financial reasons. According to some experts, the activity on the wallet, especially its inputs, suggests the wallet has been active for a long period of time. That indicates the miner was likely planning to send the 50 BTC in recent months.
Based on that, it is also probable that the miner wanted to initiate a private transaction through many inputs and outputs to safely move to another unidentifiable address. If the BTC was not going to be sold, the sender would not have to go through such extensive lengths for additional privacy. The extra effort of the sender to create a complex transaction is another piece of data that suggests it was sent to be sold to the market.
But it’s most likely not Satoshi
The transaction itself is significant because BTC from early Bitcoin blocks is rare. Blocks in the 3,000-to-4,000 range come almost immediately after the cluster of blocks Satoshi is known to have mined in January 2009. It was due to the rarity and the significance of the transaction the price of Bitcoin reacted when it was first publicized. Lopp stated:
“It’s notable because it’s probably the oldest coins ever spent, so it’s mostly fascinating that someone managed to hold onto them for over a decade and by oldest I mean longest-aged before being spent.”
Knowing that it is most likely not Satoshi, industry executives said some people may go through extreme lengths to try to unravel the identity behind the sender of the BTC. Blockstream CEO Adam Back said that it may lead to wrongful doxing of early miners merely out of curiosity, which may negatively affect any early miner of BTC. Back tweeted:
“people need to chill. if Satoshi was selling coins, surely he would sell his most recently mined, and so most anonymous first. plus this patoshi research is pretty much guessing, probably he has less coins than people think, and you’ll be doxing random early miners wrongly next.”
Still, there is always a possibility that it may have been Satoshi. However, as Bitcoin developer Jimmy Song explained, a variety of technical data suggests the block, from which the 50 BTC came from, most likely did not originate from Satoshi. Song wrote:
“It’s possible, of course, that Satoshi was running Bitcoin on multiple computers and that this is from another computer than the blue strands for blocks 3653 and 3655, but given the clear blue pattern of all the coins that haven’t been spent, it seems likely that this isn’t the same person that owns the million or so Bitcoins.”
However, as almost every data point started to suggest the 50 BTC has no link to Satoshi, the market recovered, and the price of BTC rose from around $9,300 to $9,550. A Bitcoin investor known as Whale Panda tweeted: “This has been confirmed as not a Satoshi address by multiple people... but if you could please continue your panic selling so I can buy lower that would be appreciated.”
Bitcoin’s market response to the 50-BTC transaction. Source: Tradingview
The price drop of Bitcoin in the wake of the discovery of the transaction might have been an effort of whales to take advantage of a narrative to lead a short-term pullback to areas of liquidity found at mid-$8,000 and low-$9,000.
Therefore, the high level of activity in the wallet that initially contained 50 BTC from 2009 and the lackluster reaction of Bitcoin’s price indicate that the majority of the market does not seem to believe it was Satoshi that had sent the 50 BTC.
50 BTC from a block mined in February 2009 is moving. It is the first batch of Bitcoin to move from the Satoshi generation in many years. But, three key data points show it was not Satoshi who moved approximately $470,000 in BTC.
The three data sets are: the absence of a “Patoshi pattern,” it is not a known Satoshi address, and there were other miners mining at that time other than Satoshi.
Data #1: The Patoshi pattern of Early Bitcoin Blocks
Researchers found that using a “nonce identifier,” the pattern of blocks mined by Satoshi Nakamoto can be identified.
Early blocks by Satoshi are known to have a Patoshi pattern. The absence of such a pattern indicates that the blocks weren’t mined by Satoshi.
While the pattern itself is largely technical and is debated among researchers, it shows that block 3,654 was not mined by Satoshi.
Bitcoin analyst Nic Carter said:
“Here’s a visualization of the Patoshi pattern with the block that was just spent. The blocks believed to be Satoshi have a specific pattern in the nonce, which this block does not have.”
Bitcoin researcher Zack Voell said:
“These are probably not Satoshi coins based on patoshi pattern research.”
RSK creator Sergio Demian Lerner added:
“It’s very rustic. It needs a search function. You’re right. Block 3654 it not in the Patoshi pattern.”
Data #2: There were multiple miners in 2009
Long-time Bitcoin investors including Whale Panda explained that there were several miners in 2009 mining BTC other than Satoshi Nakamoto at the time.
“Just for the record: this is not a known Satoshi address or anything. There were multiple miners even back then.”
While it is possible that the block was mined by an associate of Satoshi, it is technically impossible to prove the identity behind it.
Data #3: It is not a known Satoshi address
The address where the funds were moved from is not a known Satoshi Bitcoin address.
Referring to the address, Binance CEO Changpeng Zhao wrote:
“Relax guys. Much higher chance it is NOT Satoshi than it is. Although can’t be proven, this has happened a few times before. Don’t get too excited. Just another day in crypto.”
A confluence of three key pieces of data suggest that it is not the creator of Bitcoin that moved 50 BTC today, on May 20, 2020.
The post 3 key data points show it wasn’t Satoshi who moved 50 Bitcoin today appeared first on CryptoSlate.
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Activity in the Bitcoin options market shows BTC has a 9% chance of reaching $20,000 by the end of 2020.
The Bitcoin (BTC) options market, which is mostly dominated by Deribit and CME, gives a 9% chance for BTC to rise to it's all-time high at $20,000 by the end of 2020.
Given the tendency of Bitcoin to see a prolonged rally six to eight months after a halving is activated, traders in the options market are relatively cautious about the medium-term trend of BTC.
Data shows the BTC options market is tilted towards bulls
In the near-term, many traders on both Deribit and CME are seemingly optimistic on the price trend of BTC.
According to data from ecoinometrics, the CME Bitcoin options exchange recorded 22 calls for every 1 put. In simple terms, for every 22 people that bought BTC, one person sold.
Bitcoin Calls Versus Puts on the CME options exchange. Source: ecoinometrics
The basis of the optimism towards the short-term price action of Bitcoin by options traders is likely the consecutive tests of the $10,000 resistance level.
When a crucial level gets tested three to four times, whether it is support or resistance, it has a high probability of being broken. In the last 11 days, Bitcoin tested $10,000 a total of five times, weakening the resistance.
Options traders, who are mostly professional traders, are anticipating the price of Bitcoin to surpass $10,000 in the immediate-term, which is also supported by improving sentiment around high-risk assets such as single stocks.
Why are traders not long-term bullish?
The price of Bitcoin tends to move in extreme cycles. There has long been speculation that aggressive buying and selling by whales at high and low points causes BTC to see large price swings.
Options traders may not be comfortable in making medium to long-term bets on the price of Bitcoin due to its unpredictability in current conditions.
In previous halvings, the price of Bitcoin took about six to eight months to begin a prolonged rally. As such, the May 2020 halving alone does not warrant the price of BTC reaching an all-time high by the year’s end.
With this said, there are still several positive data points that support predictions of a record high Bitcoin price by the fourth quarter of 2020.
As an example, Bitcoin is on the verge of seeing the seventh golden cross in history if the price of BTC remains above $9,500 over the next several days.
Bitcoin is also far removed from showing oversold conditions at the higher time frames. The weekly chart shows that various momentum oscillators indicate the ongoing rally can extend further into the $10,000 to $11,000 range.
Both the golden cross and weekly MACD are relatively short-term indicators, which may be the catalyst behind the optimism in the options market.
For now, a confluence of various factors, including Bitcoin’s volatility in highly uncertain environments like the current one caused by the coronavirus pandemic are seemingly causing options traders to be more cautious in long-term calls.
The price of Bitcoin continues to reject the $10,000 resistance level, crypto traders explain where BTC is headed next.
The price of Bitcoin (BTC) tested $10,000 a total of five times in the past 11 days. The price action can be considered as a bullish or a bearish trend based on varying perspectives. The quintuple test of a key psychological level at $10,000 can be analyzed in two ways: The $10,000 resistance level is getting weakened with every test, or the resistance is so strong that buyers are not able to break out of it.
Many top crypto traders believe that the mid-$9,000 area is a starting point to a new extended rally to the $14,000-to-$15,000 resistance range and with $20,000 as a medium-term target. Others foresee a sizable pullback to the $7,000-to-$8,000 region first, before Bitcoin’s price can aim for $14,000 and then attempt to break the record high.
The short-term, bullish scenario for Bitcoin
Traders who expect the price of Bitcoin to reclaim the $10,000 resistance level as support and see a rally to key levels above it predict that the resistance area was weakened with multiple spikes to the $9,800-to-$9,900 range.
Bitcoin tests the $9,900–$10,000 resistance range five times in 11 days. Source: Tradingview
Traders continue to debate whether the current price trend of Bitcoin the start of a bullish uptrend following the highly anticipated block reward halving on May 11. Fundamentally, the block reward halving is a highly optimistic event for Bitcoin’s price because it directly affects the supply of BTC, as it halves the amount of Bitcoin mined, decreasing the rate, at which new BTC is produced and, subsequently, how much is sold on the market.
Historically, the halvings of 2012 and 2016 both resulted in at least a 2,500% increase in price. Hence, the bullish trajectory of BTC is that the halving will push the price of Bitcoin forward in both the short-term and the long-term.
According to cryptocurrency researcher Philip Swift, an indicator called the 2-Year Moving Average Multiplier shows BTC reached its bottom at $3,600 and broke out of a multi-year trendline at $5,800. At a macro level and in a more long-term scenario, Swift noted that the indicator suggests the next reasonable target for BTC is the all-time high of $20,000. Swift tweeted:
“$BTC has been super bullish since it broke out above the 2yr MA. We got our chance to accumulate below it b4 the hedge fund guys got all excited about Bitcoin. Next stop now the 2yrMA x5 [over $20,000].”
Bitcoin price with 2-Year MA multiplier. Source: Philip Swift
Similarly, Bitcoin trader Nunya Bizniz said Bitcoin is showing a “golden cross” at a high time frame, which has only happened seven times in Bitcoin’s history. The last golden cross was triggered when BTC was hovering at around $5,000 in early 2019 when it recovered from a plunge to $3,150. Bizniz tweeted:
“BTC Golden Cross (GC): GC = 50dma moves above 200dma. There have been 6 occurrences. Of those, only one has occurred while the 200MA is rising. A 7th GC is about to occur with a slight rising gradient in the 200MA.”
A golden cross typically indicates the start of an extended bull trend. However, the risk is that BTC’s price could potentially drop below this cross point when it happens, which then makes it a death cross with a bearish structure.
The seventh golden cross in the history of Bitcoin forms. Source: Nunya Bizniz
For most of the macro bullish trends of Bitcoin to remain intact, BTC has to remain above $9,000 over the next week and continue to retest the $10,000 resistance level. The positive sentiment among professional traders also coincides with the moving average convergence divergence, or MACD, indicating an additional upside on a weekly Bitcoin price chart.
Bitcoin weekly price chart with MACD. Source: Satoshi Flipper
With Bitcoin remaining above $9,000, cryptocurrency investor known as “Light” emphasized that the sentiment around Bitcoin among top traders is generally positive, tweeting:
“I am yet to run into a single competent trader/investor who is bearish on Bitcoin in this current moment. And those who are long are bullish with conviction. In hindsight it’ll either look incredibly obvious, or it’ll turn out that we’ve all run grossly ahead of ourselves.”
However, when the majority of the market is bullish, it often leaves BTC vulnerable to a correction before another uptrend. That is the risk of a deep pullback other highly regarded traders see in the near-term.
The bearish Scenario for Bitcoin over the next few weeks
If the optimistic predictions on Bitcoin revolve around the positive effect on the price of BTC a halving can have, negative projections also primarily revolve around the halving. In the previous two halvings, Bitcoin’s price dropped after the halving, and the real uptrend did not initiate until 8–12 weeks after the halving.
The tendency of Bitcoin to fall after a halving combined with the failure to break out of the $10,000 resistance level following five unsuccessful attempts has fuelled most bearish predictions for BTC. Bitcoin trader known as TraderXO said in a tweet that BTC’s price is likely to drop to the low-$9,000s in the near-term, with the mid-$8,000 region as a lower area of support.
Bitcoin price range based on its price action since early May. Source: TraderXO
Based on market data, approximately 72% of the Bitcoin futures market is taking a long position. That means the overwhelming majority of traders are expecting Bitcoin’s price to go up. While this is typically a positive piece of data, it also opens up the possibility of a long squeeze.
Across BitMEX, Bitfinex and Binance Futures, there is about $716 million worth of active longs. In contrast, only $273 million worth of shorts is filed. The large discrepancy between longs and shorts decreases the probability of a short squeeze and increases the likelihood of a deep pullback.
Variables outside of price action
The fundamentals of Bitcoin such as on-chain activity, liquidity and sentiment slightly declined after the halving. Liesl Eichholz, the head of growth strategy at Glassnode, wrote:
“Bitcoin on-chain fundamentals dropped slightly in Week 20. GNI registered a 1 point decrease over the week, pushing its overall assessment of the Bitcoin ecosystem to 73 points. This downturn was mainly driven by the Network Health subindex, which decreased by 8 points.”
The minor decrease in overall liquidity and sentiment was mainly caused by a decline in interest toward Bitcoin pre- and post-halving. Before the event, the number of transactions on the Bitcoin blockchain network and activity across various platforms increased.
Considering the pre-halving hype, Eichholz emphasized that the slight drop in fundamentals is not necessarily a negative indicator. A positive factor, however, is an increase in the number of addresses holding more than 0.1 BTC, or around $970.
Bitcoin has the image of a currency that is widely owned by whales — i.e., individual investors who hold a large portion of the asset’s supply. However, data shows that the distribution of the supply of BTC has improved, with more people owning BTC. Rafael Schultze-Kraft, a researcher at Glassnode, tweeted:
“There are now more than 3 million #Bitcoin addresses holding at least 0.1 $BTC (current value: $975 USD). That’s 14% more addresses than one year ago today.”
External factors such as on-chain data and fundamentals show that there are no major events that could have a significant impact on BTC’s price in the short-term. That leaves the current price action of BTC along with macro trend projections as the two factors that are likely to sway BTC’s price in the coming weeks.
For bears or sellers, Bitcoin’s price dropping below $9,000 to avoid a golden cross at the mid-$9,000 region and an optimistic breakout on the weekly chart would indicate the resumption of a bearish trend.
For bulls or buyers, Bitcoin’s price remaining above the $9,500-to-$9,600 range would indicate that despite strong overhead resistance, there is enough demand across spot, futures, options and institutional markets to sustain the uptrend of BTC.
Bitcoin price plunged 31% the last time the U.S. imposed tariffs on China. Will this time be any different?
The trade war between the United States and China began in January 2018. When tariffs were imposed on Chinese goods in July of the same year, the price of Bitcoin (BTC) plunged 31% from $8,487 to $6,000.
Now the U.S. and China are on the verge of reigniting a new trade war as the two nations battle over the origin of the coronavirus. U.S. President Donald Trump recently warned that the signed phase one trade deal “doesn’t feel the same to me,” expressing his intent to walk away from it.
The price of the top-ranked digital asset on CoinMarketCap faces the risk of a major pullback if a full-scale trade war between the two superpowers reemerges due to the decline in institutional appetite and China’s large share of the Tether (USDT) market.
China accounts for a fairly large share of the Bitcoin market
According to a mid-2019 report from Diar, demand for Tether in China exceeded $10 billion by as early as June 2019, accounting for 62% of all on-chain Tether inflow in the second quarter of last year.
Data provided to Diar by blockchain analysis firm Chainalysis highlights the magnitude of Chinese Tether demand with over $16Bn received by exchanges based in that market in 2018. This year the number has already surpassed an outstanding $10Bn, setting the stage for the biggest year yet. 2019 to date flows into exchanges catering primarily for Chinese traders beat the $7Bn of all the transactional value for 2017.
China’s share of the Tether market. Source: Diar
Alongside high Tether usage, two cryptocurrency exchanges in China reportedly received approval from the Chinese government to cater to institutional investors.
Sino Global Capital CEO Matthew Graham wrote:
Increasingly looks like China's story is 1) Huobi and OKEx get some level of approval (‘institutionalization’) 2) Binance and international exchanges mostly iced out 3) Small casino (‘bucket shop’) exchanges like MXC and Biki get shuttered or chased offshore.
Despite a strict prohibition of cryptocurrency trading, Chinese investors make up for a fairly large share of the global Bitcoin market.
If the inflow of capital into China slows down as a result of intensifying pressure from the U.S., it is likely to cause a decline in appetite for high-risk assets including single stocks and Bitcoin.
Historical data also suggests that heightened geopolitical risks previously led to steep Bitcoin pullbacks.
For example, the price of Bitcoin fell from mid-$8,000 to $6,000 in July 2018 within two weeks after the U.S. introduced tariffs on $34 billion worth of Chinese goods.
Bitcoin price chart when tariffs were imposed in 2018. Source: Tradingview
Institutional demand may drop
A potential fall out of the existing trade deal between the U.S. and China may also lead to declining sentiment around the U.S. stock market.
China is struggling to meet the purchase requirements established in the phase-one deal, and it is projected to miss some of the agreements.
A stock market correction — driven by the unexpected reignition of a U.S.-China trade war at a point where small and medium-size businesses still face a cascade of bankruptcies — can strain institutional investors, causing demand for Bitcoin to drop in tandem.
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Institutional investors remain unconvinced of the ongoing uptrend of the U.S. stock market due to a veariety of factors.
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In the last week Bitcoin price rejected near $10,000 three times, raising the probability of a long squeeze.
The price of Bitcoin (BTC) rose slightly above $9,900 on BitMEX, rising by nearly 9% within less than 48 hours since May 16. Despite the impressive recovery, the top ranked digital asset on CoinMarketCap faces a risk of a major long squeeze in the near-term.
Three factors that suggest the price of Bitcoin may correct following its recent rally from $9,100 to $9,900 are the: overwhelmingly large number of longs over shorts, rising funding, and a possible triple lower high formation.
Bitcoin longs overwhelmingly trump shorts
Across Bitfinex, BitMEX, and Binance Futures, 77.51% of traders are holding long positions on average.
In total, on the three futures exchanges alone, there are $763 million worth of longs filed, whereas merely $221 million in shorts are present.
Total Bitcoin longs and shorts. Source: Blockchain Whispers
If the price of Bitcoin is going up without facing significant resistance, a high number of long contracts can be considered an optimistic factor. It suggests the majority of the market is expecting the price of Bitcoin to increase in the short-term.
For instance, when the price of BTC rose from $8,500 to $10,085 within a four-day span in the first week of May, the market was majority long.
The difference between early May and the current price trend is that almost 80% of traders in the entire Bitcoin futures market are long on BTC while it is testing the $9,900 to $10,000 resistance area which it failed to overcome during the past two weeks.
Bitcoin funding, long to short contract ratio, and open interest. Source: CryptoISO
Rising funding rate coincides with large long contracts
In the Bitcoin futures market, traders typically trade a perpetual contract that has no expiry date. As opposed to conventional futures contracts, Bitcoin traders do not have to risk being forced out of their position due to time.
To provide some balance, futures exchanges use a mechanism called funding. If the market has more long contracts open, then traders that are longing Bitcoin have to pay traders shorting BTC a compensation. That keeps the market balanced and prevents a prolonged downtrend or rally.
On BitMEX, the funding rate of its perpetual Bitcoin futures contract is hovering at 0.05%. If a trader has a $100,000 long position open, the trader will have to pay $150 a day in compensation to merely keep the position open.
A high funding rate is a negative factor when the price of Bitcoin starts to go down. When BTC declines, traders no longer have the incentive to keep their positions open and compensate short contract holders at the same time.
Bitcoin is at a strong resistance level
The abnormally high percentage of long contracts in the Bitcoin futures market and the high funding rate are seen as potential catalysts of a steep pullback because BTC is at a strong resistance level.
Since the start of May, the price of Bitcoin tested the $10,000 resistance level a total of three times.
Triple lower highs on the 4H Bitcoin price chart. Source: TradingView
On May 8, BTC went to as high as $10,085 but the price failed to remain above $10,000 and eventually fell to $8,100. On May 14, BTC surged to $9,970, only to be met with a fierce rejection to $9,100. Today, for a third time, BTC hit $9,910 but failed to push through overhead resistance.
The triple lower high, a pattern composed of three low consecutive peaks, increases the likelihood that Bitcoin will experience a sharp correction in the near-term.
Crypto analysts believe Bitcoin price is set for a near-term rally as a key technical pattern points toward $9,800.
The price of Bitcoin (BTC) dropped to as low as $9,100 on May 15 following a strong rejection at $9,900. In the short-term, traders still anticipate another upsurge to the $10,000 area, or at least to the $9,800 resistance level.
Crypto market daily price chart. Source: Coin360
Bitcoin at a critical point that may decide its trend in Q3 2020
Top traders expect the price of Bitcoin to surge to $9,800 after the price demonstrated a classic technical pattern known as a falling wedge breakout.
In the last 36 hours, the Bitcoin price slid downward from $9,970 to $9,100, with barely any attempt of a significant recovery. That led Bitcoin to consolidate under a descending trendline with relatively low volume.
Bitcoin breaks out of a short-term trendline. Source: Satoshi Flipper
But on May 16, the price of Bitcoin recorded its first clean breakout since a local peak above $9,900 was achieved on May 14. The rebound of BTC from a key support area at $9,200 created a strong foundation for Bitcoin to lead a near-term upsurge to higher resistance levels.
Cryptocurrency trader Satoshi Flipper said:
Classic falling wedge breakout, then retest. Expecting to take another shot at 9.8k.
Whether the price of Bitcoin will see a continuation of an uptrend above $10,000 in the near-term is another question. Even if BTC climbs to $9,800, there are two scenarios that make a bearish and a bullish trend equally likely.
The bearish and bullish scenarios for BTC
If the price of Bitcoin rises to $9,800 and rejects in a similar manner as it did when it fell steeply from $9,970, it leaves BTC vulnerable to three consecutive lower highs at a high time frame.
Simply put, subsequent to the rejections of $10,085 and $9,970, a breakdown at $9,800 would indicate three rejections of a multi-year resistance area within a short period of time.
3 potential consecutive lower highs on the daily Bitcoin chart. Source: Tradingview
A brutal rejection of Bitcoin at $9,800 would open it up to a sizable pullback in the near-term. Heavy support levels are found at $6,800, $7,100, $7,700 and $8,100, which serve as potential areas of correction.
The most optimistic scenario would see Bitcoin reclaim $9,800 and a powerful rally above $10,000. Such a move would print historically accurate technical formations like a cup and handle pattern that may spark a new prolonged rally.
Bitcoin exchanges balance decline. Source: Ceteris Paribus
A consistent increase of Bitcoin withdrawals from exchanges may bolster the bullish scenario of BTC over the medium-term.
Data from glassnode and crypto trader Ceteris Paribus shows that exchange balances are down by around $3 billion since BTC dropped to $3,600 on March 13.
On-chain data indicates that fewer users and investors are compelled to sell BTC at current prices, making the likelihood of an extended Bitcoin rally increase despite its 160% price spike within the last two months.
The price of Bitcoin risks a continued downtrend as five metrics indicate higher chances of a short-term long squeeze.
Bitcoin (BTC) sellers are pinning their hopes on continuing to see sub-$10,000 prices in the aftermath of the halving based on five key futures market metrics.
The five measures are open interest, funding, long and shorts delta, bearish divergences, and liquidity grab at $10,000.
Open Interest on major Bitcoin futures exchanges stagnant
The open interest — the total amount of long or short contracts open in the market — of Bitcoin futures contracts on BitMEX, Binance Futures, Bybit and other futures exchanges is struggling to increase.
On May 10, when the price of Bitcoin abruptly dropped from $9,570 to $8,100 on BitMEX merely hours before the halving, it liquidated around $200 million worth of longs in a single hour.
At the time, the open interest of BitMEX dropped substantially as many long contracts were either liquidated or forced to adjust their positions.
On May 14, the price of Bitcoin similarly rejected at $9,900, dropping to as low as $9,200 overnight. The rapid pullback caused $42 million to be liquidated. Within a five-day span, at least $270 million worth of longs were liquidated on BitMEX alone.
Bitcoin rejects $10,000 and $9,900. Source: Tradingview
Following the two sell-offs, the appetite of investors in the futures market to enter a trade seemingly declined. It could potentially indicate that buyers are showing signs of exhaustion as selling pressure builds up at a key resistance level of $10,000.
Imbalance of long and short contracts
Across three major futures exchanges Bitfinex, Binance Futures and BitMEX, long contracts account for approximately 72.37% of total open interest.
As of May 15, around $661.7 million worth of long positions are open but only $252 million in short positions are filed. The large gap between long and shorts at a multi-year resistance area leaves Bitcoin vulnerable to a possible long squeeze.
Total Bitcoin longs and shorts in the market. Source: Blockwhisperer
In the past week, Bitcoin experienced two major long squeezes in short time periods. Yet, the market is still heavily swayed towards longs and that means there is a lot of liquidity to be taken in the mid-$9,000s.
Bearish divergences popping up
The Relative Strength Index (RSI) is a momentum oscillator that measures whether Bitcoin is overbought or oversold.
According to a technical analyst known as “CryptoCapo,” when the RSI of Bitcoin decreases while the price rises, it is considered to be a bearish divergence.
A bearish divergence that emerges in an extended price movement suggests that a sizable correction may occur.
Bitcoin shows bearish divergence. Source: CryptoCapo
The declining RSI and the slowing volume of Bitcoin in both the futures and spot markets could lead to dwindling momentum in the near-term.
Liquidity taken near $10,000
For large traders, liquidity in a relatively small market is key. The price of Bitcoin typically moves in extreme cycles because whales seek liquidity at a significantly low or high price point.
When the price of Bitcoin rose from the $9,000 to $10,000 range and rejected it shortly thereafter, BTC absorbed large sell orders primarily on OKEx and BitMEX.
The absorption of sell orders at a pivotal range of resistance and two sharp rejections within a five-day span increases the probability of a continued downtrend.
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Veteran trader Raoul Pal says the price of Bitcoin can easily rise to as high as $476,000 in the long-term.
Raoul Pal, the CEO and founder at Real Vision, believes the price of Bitcoin (BTC) can reach $476,000 in the long-term. Pal is not alone in this belief as hedge fund managers like Morgan Creek Digital’s Mark Yusko have also made similar predictions in the past.
Currently, the price of Bitcoin hovers at around $9,700 and high-profile investors like Max Keiser and Mark Yusko believe Bitcoin can rise to $500,000 in the long-term under two simple scenarios. One requires Bitcoin to overtake the gold market and the other stipulates that Bitcoin operates in a strong ecosystem.
If it becomes an ecosystem, and we believe it will be and it will take the whole ecosystem with it as well, then yes, I think a $10 trillion number is easily achievable within that process.
According to data from CoinMarketCap, Bitcoin’s current market cap is $177 billion. The figure is reached by multiplying the circulating supply of 18,377,331 BTC to the market price.
The total market capitalization of gold is estimated to be $8 trillion, meaning Bitcoin’s market capitalization is merely 2.2% of gold. This shows that Bitcoin is still in an early phase of growth.
Bitcoin versus traditional assets. Source: howmuch.net
Why will Bitcoin compete against gold?
A growing number of investors, institutions, and hedge fund managers are actively exploring alternatives to traditional assets to store wealth and the U.S. Federal Reserve’s aggressive fiscal policy continues to raise concerns about the future performance of the U.S. stock market.
Investors fear that over the long run the Fed’s current policy of printing record high amounts of cash will lead to the devaluation of the U.S. dollar.
As an example, earlier this week Paul Tudor Jones, one of the top hedge fund managers in the U.S. with a net worth of over $4 billion, said that he is investing at least 1% of his portfolio in Bitcoin as a hedge against inflation.
Veteran investors like Peter Schiff frequently argue that gold is one of the best hedges against market volatility and while this is true, there are limitations such as fungibility and the ease of transporting the asset.
By nature, Bitcoin is a blockchain network that is run by node operators, miners, and developers. Every transaction that is settled on the network is like a piece of data that is confirmed and verified by miners.
As such, it is transparent, fast, and easy to send transactions on the Bitcoin network to transfer value, whereas with gold, its physical attributes restrict transportability.
Industry executives issue moonshot Bitcoin price estimates
In a recently published essay, Xapo CEO Wences Casares advised that medium to large-size portfolios should have at least some exposure to Bitcoin.
In the long-term Casares said that the price of Bitcoin could reach a million dollars if more than 3 billion people start to use BTC.
My preferred way of guessing how the price of Bitcoin may evolve is much more prosaic. I have noticed over time that the price of Bitcoin fluctuates around ~ $7,000 x how many people own bitcoins. So if that constant maintains and if 3 billion people ever own Bitcoin it would be worth ~ $21 trillion (~ $7,000 x 3 billion) or $1 million per Bitcoin.
The predictions between $500,000 to $1 million consider a future wherein Bitcoin is widely acknowledged as a leading store of value alongside gold, and billions of people use it on a regular basis to transfer value.
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Bitcoin price is moving similarly as in April 2019, when BTC surged from the $5,000s to $14,000 in 62 days.
Bitcoin (BTC) price is portraying a similar trend seen in April 2019, when BTC surged from $5,000s to $14,000 within two months. Based on the similarity of the price action, there is a possibility that the top-ranked cryptocurrency by market capitalization could gear towards a new local peak in the second half of 2020.
After a price drop right before the halving to $8,200 on May 11, BTC recovered swiftly to over $9,100 within a 48-hour span. It indicates the strength of the current momentum of BTC.
Fractals are typically accurate, especially when matched with strong narratives
A Bitcoin halving occurs once every four years. In the past 11 years, the block reward of the Bitcoin blockchain network halved three times. Each time a halving happened, it triggered a gain of over 2,500% in the following months.
A halving has a long-term effect on the price of Bitcoin because it is the only event or mechanism that can affect the new supply of BTC. Bitcoin replicating a price trend last seen in mid-2019 during the week of halving can be considered a positive short-term projection because it comes after a steep sell-the-news drop.
In early May 2019, the price of Bitcoin started to recover from its drop to the low-$3,000s. Coincidentally, BTC dropped to as low as $3,600 in March 2020, merely two months ago.
The price trend of Bitcoin in mid-2019. Source: Tradingview
By May 30, the price of Bitcoin reclaimed $9,100, and after a brief pullback to $7,500, it started to rally. By June 26, 2019, BTC peaked at $13,920 on BitMEX, marking a local high point.
The time period of the recovery and the price levels match the current price movement of Bitcoin.
But beyond just a rush, two things are clear: customers of our retail brokerage were buyers during the drop, and Bitcoin was the clear favorite. Our customers typically buy 60% more than they sell but during the crash this jumped to 67%, taking advantage of market troughs and representing strong demand for crypto assets even during extreme volatility.
As record-high retail coincided with increasing institutional demand as seen in Grayscale’s Q1 2020 report, Bitcoin continued its rally. Eventually by the first week of May 2020, BTC rose to as high as $10,085 on BitMEX.
Bitcoin price trend is showing similarity with the fractal in April 2019. Source: PabloPicasso
Potential Variable That Can Sustain the Recent Bitcoin Rally
Unlike previous parabolic rallies, the run-up from $3,600 to $10,085 in the past two months was led by Binance, Coinbase and other spot exchanges.
The open interest of BitMEX, Binance Futures, and OKEx remained relatively low, especially considering the upside momentum BTC showed.
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Bitcoin miners are not likely to see capitulation and especially a “mining death spiral” after the 2020 halving due to four major reasons.
A popular narrative revolving around the Bitcoin (BTC) halving is that it may trigger the capitulation of miners. But, it is premature to suggest many miners will shut down in 2020 and bring the price of cryptocurrencies down as a result.
Some industry executives believe that the price of Bitcoin may drop following the May 11 halving. After the block rewards of Bitcoin miners get cut in half, their revenues also drop substantially. Typically, it affects overleveraged and small miners, forcing them to shut down their machines.
Digital Asset Manager Charles Edwards said:
This will be the most brutal Bitcoin Halving in history. Production cost is about to double to $14,000. 70% above the current price. During the last halving, the price was just 10% below Production cost, and Price & HR collapsed -20%. Without FOMO now, expect a big miner capitulation. 30%+
A widespread theory is that as miners capitulate, they will begin to sell Bitcoin in the cryptocurrency exchange market and add significant selling pressure, which leads to more miners leaving and so on, resulting in the mythical “mining death spiral.”
This year, there are many variables that may prevent such a trend from occurring. Four main arguments against the capitulation of miners are: cheaper electricity in China decreased operational expenses due to weaker currencies, drop in energy price due to government lockdowns worldwide, and the adjustment of mining difficulty.
Miners continued to hoard Bitcoin ahead of halving, expecting a price increase. Source: Bytetree
Cheaper electricity in China & less demand for energy worldwide
China reportedly comprises roughly 65% of all Bitcoin computing power, according to the latest data.
Moreover, the Chinese province of Sichuan is soon to enter the rainy season. Many electricity service providers in the province rely on hydropower to generate energy. When there is an abundance of water, it allows hydro plants to generate more energy than usual.
The increase in the supply of electricity in Sichuan gives large-scale mining centers in the region the ability to negotiate electricity prices. For the next few months, big miners are likely to receive major discounted electricity rates, decreasing operational costs.
Worldwide implementation of stay-at-home measures and strict lockdowns further decrease the level of electricity usage. Major factories and millions of small businesses remained closed for around two months.
Low electricity rates, record low global oil prices and the tendency of industry-leading mining firms to maintain a large cash buffer tremendously reduce the risk of miner capitulation.
Weaker currencies result in lower operational costs
According to Whit Gibbs, CEO at Hashr8, the decline of the ruble’s value may affect mining centers based in Russia.
The entire revenue of mining firms derives in the form of Bitcoin. But operational costs are often paid out in local national currencies. When the price of Bitcoin increases but the value of fiat currencies decline, it drops the expenses for mining firms as local fiat currencies lose value against BTC.
The geopolitical risks in the global economy and their possible impact on Bitcoin mining are not being accounted for. Hence, to state that miners are likely to capitulate in the latter half of 2020 can be premature.
This halving COULD be the most brutal in history but it's all just a best guess. There hasn't been a comprehensive report in the last week to talk about current geopolitical and economic conditions, and how they'll impact mining/ the price of bitcoin.
Bitcoin mining difficulty adjustment
When the number of miners mining Bitcoin declines as a result of low price and fewer block rewards after the halving, the difficulty of mining BTC automatically adjusts to maintain a steady block interval.
Bitcoin mining difficulty. Source: Blockchain.com
The term “mining” refers to the creation of new Bitcoins as a reward for contributing computing resources to the network. The network automatically adjusts how difficult it is to mine BTC every 2,016 blocks if the computing power, also known as the hash rate, drops (or rises).
The mining difficulty adjustment mechanism stops a cascade of miner capitulation from occurring, as it will get cheaper to mine BTC when the hash rate drops.
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Bitcoin’s price saw wild volatility leading up to the halving. Top crypto traders discuss where the price is likely headed to next.
Bitcoin’s (BTC) price has been showing extreme levels of volatility as it consolidates under a key level of $10,000. Previously, the price dropped to as low as $8,100 on May 10, merely a day before the highly anticipated mining rewards halving.
Following the 20% drop, traders remain divided on where the Bitcoin price would go next with some traders believing that BTC could immediately see an upsurge to the $14,000 to $15,000 resistance area.
Historically, when Bitcoin’s price saw an extended rally, it went past key resistance levels with ease. For instance, it took BTC 28 days to increase from $8,000 to $20,000 in December 2017. In June 2018, Bitcoin’s price rose from $7,500 to $14,000 in merely three weeks. So, BTC’s price has the tendency to increase by a large margin in a short period of time, especially when it’s met with huge demand from retail investors.
However, other traders foresee Bitcoin’s price testing lower support levels after its fall to $8,100. Given that Bitcoin fell post-halving in the last two halvings, technical analysts expect BTC to retest the mid-$6,000 region at the lowest.
Bullish scenario for Bitcoin post-halving
The primary bullish scenario following Bitcoin’s block reward halving is a breakout of a major trendline above the $14,000 mark — which dates back to 2017. In the past year, Bitcoin’s price moved within a large multi-year cycle established by its record high at $20,000 and its June 2019 peak at $14,000. Every time Bitcoin’s price got close to breaking out of the range, it was met with a fierce rejection.
Bitcoin’s price in a multi-year cycle dating back to December 2017. Source: Satoshi Flipper
If the current Bitcoin momentum is overwhelmingly strong and breaks out of the multi-year trend, there is a possibility that it will trigger a major uptrend. Cryptocurrency trader Satoshi Flipper said:
“I’m still betting on breaking through the upper trend line resistance and price action heading north. No way are my convictions changing because some clowns sold their BTC and price tanked 1 day.”
A Bitcoin technical analyst, known as “Galaxy,” echoed a similar prediction, saying that the last time BTC saw seven consecutive weekly candles, a 160% increase followed. In the last seven weeks, Bitcoin’s price continued to increase without major pullbacks — which last happened in December 2018. Following the seven weeks, the price surged from $3,100 to $14,000 in merely seven months by June 2019. Galaxy said:
“Look what happened the last time we had 7 consecutive green weekly candles. We had a ‘doji’ candle, followed by a 160% increase. By the looks of it, we’re in for a ride.”
Bitcoin weekly fractal between early 2019 and 2020. Source: Galaxy
Bitcoin’s optimistic medium- to long-term trend based on fractals and technical indicators is further fueled by the entrance of high profile investors into the cryptocurrency market. In an interview with CNBC, billionaire hedge fund manager Paul Tudor Jones said that the trust in Bitcoin will increase as time passes. He emphasized that the asset is merely 11 years old and that it is in an early phase of growth. Jones said:
“When it comes to trustworthiness, Bitcoin is 11 years old. There is very little trust in it. We are watching the birth of a store of value. Whether that succeeds or not, only time will tell. What I do know is that every day that goes by and Bitcoin survives, the trust in it will go up.”
Given the influence of Jones in the financial market, there is a possibility that other institutional investors may follow his lead to invest in Bitcoin. Grayscale already recorded more than $380 million in institutional investments in the first quarter of 2020, which supplements the bullish scenario of Bitcoin after the halving.
The bearish scenario for BTC in the short-term
In the short-term, several cryptocurrency traders anticipate Bitcoin’s price to drop to as low as $6,500. There are strong arguments to be made for a temporary bearish price trend after the halving. A confluence of Bitcoin nearing a major overhead resistance at $10,500 and historical data suggest a steep fall following a halving.
According to Bitcoin trader Dave the Wave, if the price of BTC continues to move based on a fractal taken from 2019, it is likely to see a pullback to the $6,000 region:
“If the fractals continue to hold, time to start thinking about consolidation levels. 50% consolidation in real terms would put BTC in the 6K range. All good for going forward.”
$6,400 is a key pivotal point for BTC’s price. Source: Dave the Wave
The mid-$6,000 area in between $6,400 and $6,600 also carries significant historical importance. In the third quarter of 2019, Bitcoin’s price dropped from $10,500 to $6,410. It consolidated in the $6,000 range for four weeks before breaking out to $10,500 once again in February 2020.
A drop to $6,400 would solidify the mid-$6,000 support area, strengthening the Bitcoin rally for a more robust extended uptrend in the second half of 2020. A cryptocurrency trader, known as “Wolf,” raised a similar concern. Bitcoin’s price has moved within an ascending triangle pattern since its abrupt recovery from $3,600 on March 12.
The sudden price drop to $8,100 on May 10 led the formation to break, technically leaving Bitcoin vulnerable to a severe correction. At the time, cryptocurrency investor Scott Melker said that the market observed a strong shakeout. Melker added:
“That was the highest hourly volume candle since the epic crypto doom fest on March 12th. I won’t be rushing into a position until this shakes out a bit. That was some real deal selling we just witnessed.”
Bitcoin at risk of breaking down from an ascending triangle. Source: Wolf
A pullback from the $10,000 level would provide some stability into the market after a 160% rally within a two-month span. Bitcoin’s price rose by nearly threefold with barely any corrections that left technical analysts worried about the sustainability of the upsurge.
Possible variables that may affect the short-term price trend of BTC
In the short-term, Bitcoin’s price faces two major variables: a sudden inflow of capital from institutional investors and capitulation from small miners. Considering that institutional investors allocated hundreds of millions of dollars into Bitcoin in the first three months of the year, the probability of a larger amount of capital entering the market after the halving is high.
Barry Silbert, the CEO of Grayscale, said in a tweet that his investment firm reached $3.7 billion in assets under management on May 9, an all-time high for the company. Grayscale said in its Q1 report:
“Hedge Fund Investment Gains Steam: 88% of inflows this quarter came from institutional investors, the overwhelming majority of which were hedge funds. The mandate and strategic focus of these funds is broadly mixed and includes Multi-Strat, Global Macro, Arbitrage, Long/Short Equity, Event Driven, and Crypto-focused funds.”
In contrast, a variable that may cause a Bitcoin downtrend in the near-term is the possibility of capitulation by small and overleveraged miners. After the halving, the breakeven cost of mining will hover between $12,500 and $15,000, depending on the difficulty of the mining as the TradeBlock report explained at the start of 2020.
While the cost of mining Bitcoin is likely to be lower than most estimates, even at the lowest forecast of $12,525, miners will be operating at a loss for at least several months. The relatively low price of Bitcoin opens BTC up for a miner capitulation, forcing small miners to sell BTC. Digital asset manager Charles Edwards tweeted:
“This will be the most brutal Bitcoin Halving in history. Production cost is about to double to $14,000. 70% above the current price. Last halving, price was just 10% below Production cost, and Price & HR collapsed -20%. Without FOMO now, expect a big miner capitulation. 30%+”
Both variables are not likely to affect Bitcoin’s price in a meaningful way in the immediate-term, as they represent extreme scenarios. BTC is now at a critical juncture that may decide its price trend over the next 12 months, and generally, traders remain long-term optimistic about the price trend of BTC.
In less than 10 hours, the Bitcoin halving will be activated. But, whales seem to be taking the opportunity to dump on the market.
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