data taken at 9:55am 12/10/2020
Written by: Yves, Head of Trading at Wirex
In line with last week’s price momentum that was fueled by both the US dollar depreciation and a new breath coming from institutional investors, the Bitcoin price (BTC/USD) reached $11,731 on Monday: its highest level since September 2nd. The movement was initially helped by macroeconomic considerations, and it accelerated on Monday when Grayscale Investments announced that its Ethereum (ETH) Trust fund (ETHE) is now registered as an SEC reporting company. Two days later, Grayscale also reported more than $1 billion in new Investments in Q3: a 147% YTD growth. The funds hold now 2% of the total Ethereum supply.
The early week positive momentum was cut short by the uncertainty around the second U.S. stimulus. Although Democrats and Republicans agree on the necessity of this second stimulus, the numbers and conditions for the eligibility of individuals and households have yet to be determined. House Speaker Nancy Pelosi mentioned on Sunday that the negotiations “remain at an impass”, casting doubts on the Congress’ ability to pass a vote before the presidential elections in November. The uncertainity triggered a short-term US dollar rebound, sending the US dollar index higher by 0.5% on Monday and Tuesday (DXY index).
On the supply side, although miners are hardly making any profit on the block production and the production difficulty has soared, the Bitcoin hashrate reached this week a new all-time high as reported by Glassnode. Bitcoin miners are producing continuously, but selling mostly when the price is right. ASIC Miner value lists the benefits a miner can expect from a device (excluding entry costs). Only 8% of the devices listed are profitable at the current price and difficulty levels. From a market perspective, a reasonable profitability threshold seems to be around the $12,000 level. It should be lower than the $12,500 level estimated by Tradeblock in Februrary. Usually, as we get close to this level, exchange inflows increase and whale alerts start to go out. Miners are already sending out their pawns. Glassnode reported a few hours ago that the “BTC Miner Outflow Multiple”, an indicator of the number of BTCs flowing out of miner addresses reached a new 3-months high. Furthermore, the “BTC Miners to Exchange Flow” also reported by Glassnode “peaked in the last 24h”.
Glassnode - Source (twitter)
Usually, when a traditional mining company can’t sell its production with a profit, it would just cease its mining operations. Production would resume only when the product’s price is back above the profitability threshold. The production stops to preserve the cash in treasury, and to avoid larger inventory costs: Equity stocks of mining companies are often deemed “defensive” or low-risk. Bitcoin miners are not so different as they have a similar level of control over their production. However, compared to traditional miners, Bitcoin miners don’t have much inventory costs. They can produce as long as they have cash to pay their energy bills. Consequently, the hashrate and Bitcoin “cold” supply are growing, and there is every reason to believe that the resistance near $12,000 is still on. Soon, we will be testing again how strong this level is.
Meanwhile, the legal actions taken against Bitmex at the beginning of the Month might have weakened the resistance. This week, OKEx, the third cryptocurrency exchange by Volume, also suspended all cryptocurrency withdrawals explaining that “one of their private key holders is currently cooperating with a public security bureau in investigations where required”. The announcement triggered this morning the ~-2.7% drop of the BTC price in a span of 30 minutes. A correction that should be quickly resolved.