Written by: Yves, Head of Trading at Wirex
The Bitcoin price is still evolving around $40,000 this week, quoting at $40,811 at the time of writing. The price of the first cryptocurrency reached $42,614 on Sunday, a level that was last seen on May 20th, then fell back to $37,300 on Thursday morning, and eventually bounced back by 10% in the span of five hours. This week was marked by a series of bullish reports and steps delivered by large institutions in the traditional financial sector.
Bank of America issued a report on July 26th, brought to light on Sunday by El Salvador’s president Nayib Bukele in a tweet. The report recognises the benefit of Bitcoin versus the US dollar for remittances, for potential foreign direct investments, and for banking the unbanked in a country where ‘more than 70% of the adult population in El Salvador does not have a bank account’. El Salvador could turn out to be an El Dorado for ‘green’ Bitcoin miners. In particular, the country’s geothermal energy is expected to be used for mining.
Bloomberg Intelligence explained in a report published on Wednesday why it still considers the Bitcoin price to be ‘back on track for $100,000’. The report points out that the Bitcoin hashrate has been gaining momentum after the extreme correction observed in the second quarter. The correction was mostly due to China’s crackdown on miners: it was an expected and necessary pain given that China has been warning and threatening the sector for years. But now, the improving hashrate momentum shows that miners have reorganised: the crackdown ‘enhances decentralisation as it shifts to more sustainable jurisdictions’, including the US, or Paraguay where Chinese miners are reportedly planning to relocate.
Source: bitinfocharts. Bitcoin hashrate picking up after the Chinese miners shutdown in May-June
Last but not least, another major investment bank, JP Morgan, has reportedly launched a private Bitcoin Fund, a tracker that is intended for its private bank clients. It is also presumably actively pitching the fund to its wealthy clients.
On the regulatory front, the US senate is expected to vote this week on an amendment to the bipartisan infrastructure bill that would favour cryptocurrencies. The $1 trillion allocation planned by the bill is meant to boost the US economy through infrastructure spending. But the bill’s budget was meant to be partially covered by tax restrictions that would have stifled the cryptocurrency sector. The amendment to be voted will exempt miners and developers from the new tax rules. In general, regulations for cryptocurrencies could be heading in the right direction in the US. The US senate’s anticipated vote is not the only positive evolution that stood out this week: the hopes to see a US Bitcoin ETF created this year also returned as Invesco and Proshares filed registration statements with the SEC. The proposed ETF would be actively managed and invested in Bitcoin futures. The filing was done only à few days after the chairman of the SEC, Gary Gensler, hinted that ETFs based on CME-traded Bitcoin futures would have the best chance of approval. Gary Gensler is certainly encouraging fund managers to file, helping them find the right setup to get approval. As explained in March, the MIT professor has what it takes to finally bring the US ETF to life.
Meanwhile, the daily Bitcoin traded volume is still in the lower range of 2021, but the new price dynamic might send it quickly towards the high volumes observed in the first quarter. Decentralised exchanges (DEX) would also benefit from increased trading volumes, making for instance liquidity providers more profitable. The performance of native DEX cryptocurrencies soared: UNI (Uniswap): +29%, SOL (Solana): +19%, AAVE (Aave): +20%. The DEX protocols would also profit significantly from the lower on-chain transaction fees promised by the ETH2 upgrade. ETH2’s ‘London upgrade’ activation on Thursday certainly contributed to the performance of the DeFi tokens as it did for the second largest cryptocurrency by market capitalisation.
Ether outperformed Bitcoin by nearly 18% this week. The “London hard fork” upgrade is expected to bring more stability to transaction fees, and burn a portion of the fees that was meant for miners. The burning process is essentially a transfer of wealth from miners to holders. In total, 2913 ETHs have been burned at the time of writing, and we’re burning 2.67 ETH/min. Still, the ETH produced currently exceeds the ones burned: the current ETH emission is near 6 ETHs per minute.