Bitcoin (BTC) price has increased nearly 30% since the end of June, from $ 8,905 to just under $ 11,500 at the time of going to press. After the strong rally in the dominant cryptocurrency, three macroeconomic factors point to an optimistic medium-term trend. These macro factors point to a positive price cycle in the medium and long term, but suggest that momentum will ease in the short term and that a phase of consolidation will occur.
As Cathy Wood, CEO of Ark Invest, discussed on the In the Know podcast, there is technically little resistance between $ 13,000 and BTC’s all-time high of $ 20,000. Wood noted that BTC could see a new trading range between $ 10,000 and $ 13,000, which would start a healthy period of consolidation.::
“The [nivel] $ 13,000 is important because if we were to break it there would be very little resistance technically and we would likely go back to the highs we saw in late 2017, i.e. around $ 20,000. We’re not sure if that will happen. We could stick to a new trading range just slightly higher than the last six to ten. We can range from $ 10,000 to $ 13,000. A pause, however. “
It remains uncertain whether Bitcoin will remain in the USD 10,000-13,000 range for an extended period of time. Over the past three years, BTC has tended to consolidate in September and October and recover in mid-November. With the block reward reduction activated on May 11th, the likelihood of an uptrend from November to December remains high.
The disappearance of the dollar benefits Bitcoin
One ongoing narrative of Bitcoin’s long-term prosperity is the decline in the US dollar. In the last few months Mainly due to the pandemic and the US economy’s struggle to reopen, the dollar has fallen in value against other reserve currencies.
July 31st Lee Hardman, a currency analyst at Mitsubishi UFJ Financial Group, said the dollar sell-off was “relentless”.. According to Supriya Menon, multi-asset strategist at Pictet Asset Management, Several macroeconomic factors, including the skyrocketing number of COVID-19 cases and uncertainty surrounding the November presidential election, contributed to the weak dollar.
Meltem Demirors, Chief Strategy Officer at CoinShares, believe These periods of economic uncertainty and dollar weakness would likely benefit Bitcoin as well as gold:
“Where is Bitcoin in the business cycle? In times of economic uncertainty and dollar weakness, Bitcoin should benefit just as much as gold. If Bitcoin’s financialization continues, it cannot remain isolated from the EU.” Financial system “.
It is unclear whether the dollar’s downward momentum has already fully impacted the price of Bitcoin. The US dollar has already fallen to a two-year low, and analysts are forecasting a recovery in the dollar in the short term.
Two variables that could cause the dollar to continue falling are low interest rates and the European Union’s sizeable stimulus package. The euro has outperformed the dollar in recent weeks as investors found the European Union’s € 750 billion recovery fund compelling. Despite aggressive fiscal policies in Europe, the US economy’s path to recovery is not firmly established. Patrik Schowitz, Global Strategist at JPMorgan Asset Management, noted:
“The United States’ superior economic performance over the euro area and Japan (no longer) seems to be guaranteed at least for the next few years, given the volatile response to the virus. […] The decline in its interest rate advantage makes the dollar less attractive and forces investors to consider deposits in other currencies. These cyclical factors will not change anytime soon and the US dollar should continue to fall. “
The downward trend of the dollar is in line with expectations of a medium-term increase in inflation rates. If Bitcoin is viewed by many as a store of value and a potential hedge against inflation, the upcoming speech by Federal Reserve (Fed) Chairman Jerome Powell could bolster BTC’s image over the long term.
Powell is expected to speak at a virtual Federal Reserve conference on Aug. 27, discussing mild inflation. For now, The markets do not expect the Fed to make any significant changes to its fiscal policy. Even if the Fed says it could let inflation rates rise for a while, it might not have a profound effect on BTC.
Correlation with gold
Gold and Bitcoin may have seen a more correlated price cycle in recent months due to the falling dollar. According to Skew, Bitcoin and gold have risen simultaneously since mid-July and have fallen simultaneously since the first week of August.
There are several reasons why Bitcoin and gold could see similar price movements. First, through growing institutional activity, The public image of BTC as a store of value has been strengthened. Securities firms like Ark Invest have cited MicroStrategy’s massive $ 250 million buyout of Bitcoin as a token strategy that could improve sentiment around Bitcoin in the long term. Secondly, Both Bitcoin and Gold appear to have had an inverse correlation with stocks since early August.
Related: Bitcoin and Economic Uncertainty: Patience is the Question
The similarities in gold and Bitcoin price cycles may not necessarily benefit BTC for the foreseeable future, but do suggest that investors may see BTC as a store of value and a safe haven rather than an asset. Risk like stocks on the stock market.
Several on-chain macrometrics suggest that Bitcoin is going through an extended accumulation phase. where investors keep buying more and more BTC to keep. Grayscale, a crypto-focused investment firm with $ 5.9 billion in assets under management, discovered that the number of BTCs held for more than a year has increased significantly.
Look how much $ BTC has been held for> 1 year and is a supply side metric used to help investors evaluate #BitcoinValue. If the number of investors holds up #HODL increases, then less BTC is available for trading on exchanges, thus less supply. More metrics here: https://t.co/3D7bXoJ1Jw pic.twitter.com/OO86XrNwz5
– Grayscale (@Grayscale) August 24, 2020
Citing data from Glassnode, the cryptocurrency market analyst Unfolded said that the number of Bitcoin addresses has reached a new all-time high of more than $ 11 million. The trend shows that more and more large investors are hoarding BTC, probably with a long-term investment thesis and the intention of “HODL”.
In general, most of the on-chain data and macro factors suggest a high probability that the bitcoin bull market will hit 2021. There are several risks in the market structure that could prevent a premature breakout. The most famous lock in BTC’s short-term price cycle is likely The high resistance range of $ 12,000-13,000 marked the culmination of previous attempts to break out of $ 14,000.
The coincidence of the probability that Bitcoin will have low volatility in September and October and the repeated rejection of $ 12,000 could dampen BTC momentum in the short term. P.However, in the medium to long term, especially late November and December, there are an abundance of macro factors that could reinforce the case for Bitcoin prices to rise.