As Bitcoin briefly surpasses $13,000, its highest price for 2020,
market sentiment and fundamentals both favor a prolonged bull market.
Bitcoin price has seen a
healthy upward tick toward the $13,000 mark in the fourth quarter. At
the start of the quarter, Bitcoin (BTC)
was in the sub-$11,000 region, and from there, constant rises took the
price to the $13,000 mark on Oct. 21 for the first time this year.
The
price rallied to $13,217, a record high for 2020, before falling to
around the $12,750 mark. This upward price movement is certainly
indicative of the bullish sentiment held by investors in the current
market.
Rising hash rate a bullish sign?
The Bitcoin hash rate has also been constantly increasing
since the end of the second quarter, reaching its all-time high of 157
exahashes per second on Oct. 17, according to data from BitInfoCharts.
The metric estimates the number of hashes per second that the Bitcoin
network has performed in the past 24 hours. It signifies the speed at
which a miner arrives at a certain hash, which is the number of times a
hash function can be computed per second.
Thus, the more that BTC
is mined, the bigger the hash rate increase. Jay Hao, CEO of OKEx — a
cryptocurrency exchange based in Malta — told Cointelegraph that the
rising hash rate is good news for the network:
“It shows
that miners are confident about the future price direction of Bitcoin
and are scaling up resources. They are often good at predicting BTC
price, although price increases don’t always follow the hash rate
increases. There is no established link between the two. It’s possible
we see the price rise especially if more miners hold rather than sell
their new coins, but it’s not a certainty.”
However, the
rising hash rate also means that miners will also need computing power
to be able to mine profitably, due to the increased competition on the
network. Hao further elaborated on these nuances, stating that more
competition is likely to emerge in the long run, and those with lots of
resources will be more successful: “If Bitcoin's price increases this
will generate more income for miners but if the price fails to rise and
the hash rate increases, it will generate more costs for miners.”
Agreeing
with the idea that an increasing hash rate indicates bullish sentiment,
Tone Vays, the organizer of the Financial Summit, elaborated on what
this might mean for Bitcoin miners, including comparing them with the
miners of the Ethereum network:
“The rise in hashrate
during consolidation or a slow uptrend in price is always a positive for
more price upside. As price rises, miners that invested in well managed
farms will profit nicely. Bitcoin mining will always be more profitable
than Ethereum mining long term for the obvious reason that Ethereum’s
C-Level management is on a mission to eliminate mining in favor of proof
of stake.”
Bitcoin distribution analysis reveals patterns
Because
Bitcoin becomes rarer by the day, as there is only a limited amount of
coins that can be mined, it’s important to also consider the role that
distribution trends among BTC holders play in the sentiment of the
market. According to data released by Blockchain Center, cryptocurrency
exchanges currently account for 12.62% of the total distribution of BTC, and this figure is decreasing.
The
two main reasons for this may be that new holders are purchasing
Bitcoin from the secondary market and saving it in cold wallets as a
store of value, similar to what traditional investors would do with
gold, and the DeFi boom, which may lead some investors to tokenize
Bitcoin for quick profits in DeFi markets rather than hold it. As this
trend increases the circulation cost of Bitcoin, the price of BTC is
bound to go up as exchanges’ size in the token pool decreases.
The second important figure is the amount of Bitcoin held by institutional investors and whales, which stands
at 3.74% and is increasing incrementally. These large institutional
investors are increasing the percentage of Bitcoin in their portfolios,
as they see it as a store of value and a hedge against the uncertainty
in the traditional market. Hao further stated that “With fewer Bitcoin
left and more usage emerging, the Bitcoin price trend would certainly
seem to be bullish.”
According to market sentiment data
tracked by IntoTheBlock — which analyzes on-chain data, exchange
signals and derivatives information — the market is currently “mostly
bearish,” even as Bitcoin touched $12,900. The large-transactions and
net-network-growth indicators point toward the market being slightly
bearish, as they are contracting in size due to the aforementioned
reasons. As noted by crypto analytics firm Skew, the Bitcoin options
markets also indicate “volatility on the upside” for their underlying asset.
Macroeconomic indicators that are making the markets bullish
The
current macroeconomic scenario is extremely positive, with United
States presidential candidate Joe Biden ahead in the polls and new
stimulus check talks resuming. In fact, this has, so far, been the
fastest rebound for the U.S. economy in history. Since fears of the
pandemic led to market lows in March, U.S. equity stocks have soared,
with the Dow Jones Industrial Average gaining more than 59%, the S&P
500 gaining 63%, the small-cap Russell 2000 index gaining 70% and the
Nasdaq Composite index gaining 81%. The Nasdaq has even passed the highs
it reached before the pandemic.
Simultaneously, this has led to
the correlation between BTC price and the U.S. equities markets to be
higher, along with positive funding rates in the Bitcoin futures market.
These are highly encouraging signs for Bitcoin, and the recent BTC
purchases by large institutional investors such as Square and
MicroStrategy are pushing the short-term bullish sentiment in line with
traditional markets through the end of the year.
Related: The next big treasure: Corporations buy up Bitcoin as a treasury reserve
The
excessive quantitative easing done by governments all over the world to
temporarily solve their nations’ economic woes will also have a
positive impact on the price of Bitcoin, according to Vays:
“Unreasonable
money printing by every government in the world, corporations investing
in Bitcoin as a strategic reserve and the continued war by the US
against non-KYC/AML businesses is more than enough fundamental in favor
of a Bitcoin price breakout.”
Even when the traditional
market has faced extreme volatility, Bitcoin has held its own, proving
its place as a reliable alternative asset and a possible store of value.
It’s also finding more uses within the cryptocurrency space, such as
the use of tokenized Bitcoin within the DeFi ecosystem. News of PayPal’s
Oct. 21 announcement that it will allow crypto payments starting in 2021
has provided a confidence boost to the blockchain industry, as it adds
more credibility by presenting Bitcoin as an asset that can be used for
day-to-day transactions.
source link : https://cointelegraph.com/news/bitcoin-market-sentiment-and-fundamentals-still-favor-btc-price-bulls
