It’s been another week of range trading for bitcoin. The leading cryptocurrency once again maintained its price action, remaining between $10,000 and $11,000. Bitcoin’s inability to break out seems to be related to similar indecision in the legacy markets, namely the S&P 500.
Analysts are leaning bearish on bitcoin as per futures data. This may not last for long, though, as there are fundamental and on-chain trends that could drive the crypto market to the upside over a medium-term to long-term time span.
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TL;DR
- Bitcoin saw a relatively mild week, remaining range bound between the critical support at $10,000 and resistances in the $10,800–11,200 region.
- The growth of the Bitcoin network, meaning the number of active users and transactions, has stalled in the near term according to IntoTheBlock.
- Willy Woo, a prominent on-chain analyst, is convinced that this short-term setback will not harm Bitcoin’s long-term on-chain growth.
- Woo thinks that this growth will allow bitcoin to diverge from the S&P 500 and other legacy markets.
Here’s your market snapshot:
All prices are in USD and time zones are PT. Prices are as of 11:05am PT, 9/29/2020.
Bitcoin current fundamentals are slightly weak
According to IntoTheBlock, a blockchain analytics firm, bitcoin’s current fundamentals are weak.
The firm reports that two out of seven of its core on-chain and market metrics are currently “bearish.” Out of the five other metrics, four are “neutral” and the last is “bullish.” IntoTheBlock thus says that bitcoin currently is “mostly bearish.”
The two bearish metrics are related to the number of active Bitcoin addresses and the number of large BTC transactions. The drop in the growth of the Bitcoin network may be related to the slow price action in the cryptocurrency market. Because bitcoin is so stagnant, there is likely little desire amongst traders to send capital to and from exchanges. Transaction demand of the network naturally increases during times of volatility.
Election uncertainty likely driving mixed crypto price action
One potential reason why the cryptocurrency market may be indecisive, evidenced by the neutral-to-bearish funding rates and the tight price action, is due to uncertainty around the upcoming U.S. Presidential Election.
The performance of most markets has historically been mixed around the time of previous U.S. elections, bitcoin included. One analyst shared a chart indicating that the cryptocurrency traded within a relatively tight range in proximity to an election. This seems to happen because unless there is certainty about what candidate will be elected, it is unclear what social and economic policies will be implemented that could impact markets.
Bitcoin to decouple from S&P 500: Willy Woo
While bitcoin’s price action may be dependent on legacy markets in the near term, analysts think these two asset classes will soon diverge.
Willy Woo, a prominent on-chain analyst formerly of Adaptive Capital, released a series of analyses this week on why he thinks bitcoin’s internal adoption curve will allow BTC to become an asset that acts independently of other markets. While he acknowledged the current correlation, his thought is that as bitcoin’s user base ramps up dramatically, the price of BTC should naturally tend higher despite volatility in other markets. This would mean that the power of network effects overpowers the legacy market correlation that has been cemented since March’s drop.
Woo’s optimism about bitcoin’s ability to decouple from legacy markets is related to potential adoption trends for the asset:
“We’re at the early adopter phase in Western countries, some higher inflation countries are now broaching early majority according to this chart from Statista. (And yes, the high monetary inflation the world is undergoing right now is growth steroids for BTC HODLer adoption.)”
Adoption, he explained, is being spurred by wallet providers and exchanges, which are clearly showing an uptick in the number of users of the Bitcoin network. He added that with an increasing number of HODLers and venture capital companies entering the space, bitcoin should have an increasing price floor that should result in growth over time.
Bitcoin hash rate continues ascent higher
Underscoring these trends, the hash rate of the Bitcoin network continued its ascent over the past week. As we mentioned earlier this blog, the metric, which measures how much computational power is being allocated to mine Bitcoin blocks, is up 1.1% over the past seven days.
Speaking to The BTC Times, Ethan Vera, co-founder of HashRateIndex and Luxor Mining, said that the growth in the hash rate is related to new mining machines arriving at farms around the world:
“Hashrate as represented by the 7 day SMA has increased 7.5% over the week. S19s have begun to arrive in farms, and these higher efficiency machines are being plugged in even at the current mining profitability level of 8 cents USD a TH.”
A number of cryptocurrency mining firms have ordered millions of dollars worth of S19s, a new Bitmain ASIC machine, over recent months. In August, Riot Blockchain bought $17.7 million worth of the machines. This came after Marathon Patent Group and Core Scientific both bought millions of dollars worth of the machines in June.
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