data taken at 9:37am 30/10/2020
Written by: Yves, Head of Trading at Wirex
The Bitcoin (BTC) price (BTC/USD) reached a new 2020 high this week, touching $13,864 on Wednesday, before a 4.8% correction back to the current $13,200 levels. BTC/USD is up by nearly 22.5% this month.
Even though October is only the 4th best performing month in 2020, it carries great expectations as the market stands more resilient than it’s ever been before. BTC/USD has been quoting above the $10,000 level for more than 50 days: the longest period in Bitcoin’s history. A period almost this long was last seen in December 2017 for 48 days. The $10,000 level fulfilled its role as a strong resistance level, and the resistance is shifting now around the $13,000 level. Indeed, large BTC wallets have registered significant inflows near the $13,000 level as reported by whalemap. Similar levels of “accumulation” were only seen in the first week of December 2018 when the price dropped below the $4,000 level, down to $3,400: the range held for 4 months before a strong rebound in March 2019. The current context seems even more resilient now: Whales (and miners) have been holding and accumulating BTCs at a stronger pace since August this year.
As far as miners are concerned, we mentioned in a previous article that Bitcoin miners were continuously producing, and then mostly holding and selling only when the price was right. The continuous Bitcoin block production is indicated by the hashrate that soared in 2020. Miners took loans to upgrade their hardware throughout 2020. They bought Application-Specific Integrated Circuits (ASIC), designed precisely to mine Bitcoin. The hashrate as reported by Blockchain.com reached new records recently, on October 18th. There is usually a high correlation between the hashrate and the BTC price: the expected profits from mining increase with the expected BTC price. In other words, miners would strive to produce more if they expect the BTC price to increase, and sell later, at a more favourable price.
The estimate of the average miner’s breakeven level stood around the $12,000-$12,500 levels. These levels offered a good resistance in August… But eventually, they could not resist the bullish institutional wave of investments led by Microstrategy, Square and Paypal. There wasn’t enough liquid supply from the miners to resist the rally then. And there is less chance of having enough liquid supply to resist another rally in the near future…
As a matter of fact, after its peak on October 18th, the hashrate dropped severely. It is the most severe 10-days drop since the one that followed the halving event on May 11th. The drop is explained by the end of China’s rainy season. Indeed, Chinese miners in the Sichuan region are effectively sourcing the energy they need from the hydroelectric mega-dams. Levels of water typically hit very high levels in that season: in fact, record levels were hit from June to August this year. Furthermore, crypto-news-flash reported in April that China was cutting its tariffs to support the Bitcoin miners ahead in the 2020 rainy season. Both the environmental context and the political action encouraged the Sichuan Bitcoin miners to increase their reserves for (non-)rainy days. But they are likely in no rush to deplete these reserves, and the consequent lack of liquid supply is helping the market reach new heights…
From a macroeconomic point of view, the context also contributes to the acceleration of the positive momentum.
The health crisis is worsening: the number of COVID-19 cases in the United States hit a new daily high yesterday. European countries are imposing new restrictions to cope with the virus’ second wave. The economic context is fuelling speculations on the Central Banks’ monetary policies. As reported by CNN this week, the European Central Bank’s president, Christine Lagarde, recognised that “the euro area economic recovery is losing momentum more rapidly than expected after a strong yet partial and uneven rebound in economic activity over the summer months”. There is absolutely no limit to the monetary expansion tools that are being deployed to counter a looming double dip recession. In Europe, the ECB announcement yesterday implied the launch of a new stimulus before the end of the year, sending the BTC/USD level 3.8% higher within hours. Italy seems to have an unlimited credit line with the ECB as it issued interest-free bonds this month. In the US, even though the inflation is still below the 2% target (1.4% in September), Bitcoin is still gaining traction as an inflation hedge. At least, the Fed’s loose policies seem to establish the cryptocurrency as a credible alternative. Grayscale released an investor study on Tuesday stating that:
- “More than half of U.S. investors are interested in investing in Bitcoin. (…) This marks a significant increase from the 36% (…) in 2019”.
- “Most investors made allocations in the past 12 months”.
All things considered, the most convincing argument for a Bitcoin investment could be its appeal to the younger segment of the audience polled by Grayscale. Could it indicate that Bitcoin is indeed the future of currency?