data taken at 9:43am 06/11/2020
Written by: Yves, Head of Trading at Wirex
The Bitcoin price (BTC/USD) jumped by nearly 13.5% this week, almost touching the $16,000 level today. The price increased by more than 20% over the past two weeks. The $15,969 higher price reached yesterday was the highest since January 8th 2018.
The US political context is likely contributing to the Bitcoin rally. The uncertainty surrounding the outcome of the presidential elections sent the US dollar 1.7% lower, and the price of gold 2.3% higher over the past 2 days. Considering Bitcon as the digital gold equivalent, investments naturally poured into the cryptocurrency, sending its price to new heights. Since last month’s institutional “awakening”, Bitcoin is also expected to be one of the most profitable investments that any treasury or fund could have done. BTC/USD rallied by more than 40% this quarter, with an institutional interest that is still in its infancy. Paypal’s CEO announced that only 10% of US customers had access yet to the crypto service, and that the initial $10,000 purchase limit per account, per day, would be raised to $15,000. All Paypal’s US customers would have access to the service in the next two weeks.
Although the macroeconomic context can explain the jump, the fundamental reason for the current pattern is also structural, explained by the coin’s underlying mechanisms. Regardless of the US political context, the price movement is proof that the main cryptocurrency is structurally and economically quite a marvel. It holds a quasi-promise of an incredible rally every 4 years, when mining rewards are cut by half. This year’s rally seems to be on track to reach an all-time high. Although the miners’ average breakeven levels are now significantly below the current price levels, the Bitcoin supply is clearly not balancing the demand yet. Miners accumulated BTC reserves during the rainy season. They have inventory. And mining operations are much more profitable now. The total miners revenue (in USD) doubled this week.
Total on-chain transaction fees paid to miners in BTC
As mentioned in previous articles, miners are also enjoying revenues from on-chain transaction fees. Blockchain.com shows that the Total Transaction Fees paid to miners (in BTC) are now 2 to 3 times higher since the end of September. The percentage of miners revenues coming from transaction fees will likely exceed the all-time high (28%) reached in January 2018. It is already at 20%, almost twice the highest levels seen in August this year. It is in the miners interest to have a soaring price, because both the feerate revenue (in USD and BTC), and the block sale revenue (in USD) are higher as a result. As flows from mining pools to exchanges remain low so far (cf. CryptoQuant graph below), the BTC liquid supply should not slow down the bullish trend.
CryptoQuant: Daily amount of BTC transferred from mining pools to exchanges versus BTC price in USD.
Although this week’s movement can be explained by the US elections uncertainty, and the supply-demand mechanisms, it feels like there is a bullish panic that could end with a parabolic pattern, similar to January 2018. The increase of the Bitcoin derivatives open interest and the increase of “leverage” in general indicate that volatility and risk are growing. The Bitcoin options interest (in USD) reached a new record high yesterday, as well as the BTC options daily volume: $888 millions traded yesterday. The BTC futures open interest also reached new record levels. Leverage and greed go hand in hand: greed is also back. The greed and fear index is now close to levels seen in June last year, at the high of 2019.
skew.com: Weekly BTC Options Volumes traded
The Bitcoin rally left the main alternative cryptocurrencies behind. The BTC dominance increased by 8% in a span of 15 days, rising above 66% this month, and wiping out the losses sustained this year by the DeFi craze. Grayscale’s CEO comments yesterday sound here like a suitable conclusion: “People will never say Bitcoin is dead. Never”.