Bitcoin has once again stagnated between $10,000 and $11,000 over the past week. As soon as the cryptocurrency was poised to move above the upper bound of the range, recent news broke about crypto charges from the Commodity Futures Trading Commission (CFTC). This news resulted in a strong correction, likely holding bitcoin back from a breakout.
Analysts say that the intense consolidation bitcoin is seeing right now is a likely precursor to a strong breakout in either direction. Consolidation often precedes breakouts.
TL;DR
- Bitcoin once again traded in a range between $10,000 and $11,000, undergoing a rejection at the top of the range.
- IntoTheBlock reports that bitcoin currently is “mostly bearish” due to a decrease in the number of active addresses and the number of large transactions taking place every day.
- Bitcoin is currently facing a short- to medium-term setback after President Trump was reported to have called for Congress to stop stimulus talks until after the election.
- Analysts still expect a stimulus bill to pass after the election. Should a stimulus bill pass, bitcoin will likely continue its ascent as its status as a hedge against monetary inflation will gain further traction.
- Multiple central banks over the past week have also indicated that they are pursuing central bank digital currencies.
- This trend may boost bitcoin over the long term due to the potential for the cryptocurrency to be used as a hedge against negative interest rates and invasions of privacy.
On-chain data suggests that the prevailing short-term trend still is bearish, as do certain fundamental trends. News just broke reporting that President Trump has sought to stop Congress from pursuing further discussions about stimulus; markets have rallied over recent weeks due to expectations of another multi-trillion-dollar stimulus effort from the U.S. government.
Meanwhile, central banks have doubled down on their efforts to launch digital currencies in a manner that could boost Bitcoin’s long-term value proposition.
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Bitcoin price movements
All prices are in USD and time zones are PT. Prices are as of 2:00pm PT.
Bitcoin drops as stimulus talks are paused by President Trump
Bitcoin dropped approximately 2% from its daily highs on October 6th as a result of news breaking that President Trump told Congress to stop stimulus talks until after the election in November.
Cabinet member Treasury Secretary Steven Mnuchin and politicians on both sides of the aisle were actively debating the prospects of another multi-trillion-dollar stimulus bill. Numbers such as $2.5 trillion, along with the prospect of another $1,200 stimulus cheque, were considered during these talks. Just three hours prior to President Trump’s announcement, Federal Reserve Chair Jerome Powell urged Republicans and Democrats to come to a decision on the stimulus.
A possible reason for why bitcoin has slipped is that all markets — from equities and precious metals to even cryptocurrencies — have likely been rallying over recent weeks based on an expectation that another stimulus bill would be passed and implemented.
Temporarily stopping stimulus talks marks a medium-term setback for bitcoin. However, it is expected that further fiscal stimulus will be passed once the negotiations resume.
Bitcoin is expected to benefit from this persisting economic trend of monetary and fiscal stimulus. Hans Hague, head of quantitative strategy at Ikigai Asset Management, recently mentioned that BTC remains an extremely viable long-term investment due to macro trends that indicate that monetary inflation will continue. Bitcoin acts as a hedge against monetary stimulus due to it having a fixed supply of 21 million coins. We previously explained how bitcoin is the antidote to unlimited money.
On-chain metrics suggest bitcoin trend is bearish
IntoTheBlock, a blockchain analytics firm, reports that the fundamentals of the Bitcoin network currently are “mostly bearish.” Two out of seven of its core on-chain and market metrics are printing “bearish” signals. The five other metrics are “neutral.”
Like in our last Bitcoin Moves report, the two “bearish” metrics are related to the number of active Bitcoin addresses and the number of large BTC transactions. IntoTheBlock data suggests that the number of active BTC users has decreased, as has the number of transactions over $100,000.
Central banks continue to pursue digital currencies
Over this past week, multiple central banks have continued to move towards launching their own digital currencies — referred to as central bank digital currencies or CBDCs (we explain what CBDCs are here).
In a report released on October 2nd, the European Central Bank (ECB) — the central monetary authority for the Eurozone — indicated it may begin to pursue an effort to launch a digital euro by mid-2021.
Along with signaling the ECB’s intent in the CBDC space, the central bank analyzed the opportunities and risks in launching a digital version of the euro. The report highlighted that there are many benefits, including but not limited to fomenting innovation, contributing to the Eurozone’s financial sovereignty, and cementing the international status of the euro and thus the Eurozone.
Around the same time that the ECB released its report, the deputy governor of the People’s Bank of China (PBOC), Fan Yifei, indicated that its digital currency, which is already live, has already been seeing rapid growth.
“PBOC regards digital renminbi as an important financial infrastructure for the future,” Yifei said.
The system, better known as DCEP (or DC/EP), began its pilot tests in April, which have since expanded to involve many top financial and technology companies and many cities within China, including Shenzhen. In his speech, the governor said that DCEP has facilitated around 1.1 billion yuan worth of value transfers across 3.13 million transactions. This equates to around $162 million in transactions.
Other central banks that made moves within the central bank digital currency space this week include the central banks of Canada, Thailand, Hong Kong, Estonia, and the Bahamas.
Overall, it’s a positive development that governments are looking at the possibilities for CBDCs. CBDCs may bring improved financial transactions, making it easier for people to send money. Certainly, this builds awareness for further financial innovation, and broadens awareness around the value of cryptocurrency.
Further, central banks pursuing their own digital currencies could actually boost Bitcoin’s value proposition. Within the cryptocurrency space, there has been a fear cited that the introduction of centralized digital currencies could come with clear invasions of data privacy. Bitcoin provides users with a way to opt-out of a future where privacy could be further diminished.
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