Bitcoin breaks out past the $11,000 mark as US stimulus talks resume and institutions pour more money into the asset
At long last, after five weeks of consolidation within a tight $1,000 range, bitcoin broke out this past week. In a rally beginning late last week, the leading cryptocurrency surged from $10,400 to a recent high of $11,725 that was formed on Monday morning. After six days of consistent gains, bitcoin retraced slightly, as it now trades at $11,400 as of the time of writing.
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TL;DR
- Bitcoin pushed $1,000 higher over the past week after President Trump ended the moratorium on fiscal stimulus discussions.
- Another fundamental tailwind that buoyed bitcoin was institutions continuing to enter the cryptocurrency space.
- Coin Metrics has reported that a number of on-chain trends show that Bitcoin is in a similar spot now as it was at the start of 2017 bull run. But, there are some bearish factors that could suppress upside.
- IntoTheBlock reports that bitcoin is still “mostly bearish” as key metrics remain at mediocre levels.
- There are also some unknowns around how China will address Bitcoin and cryptocurrency as President Xi Jinping is expected to speak on technological developments on Wednesday.
Here’s your market snapshot:
All prices are in USD and time zones are PT. Prices are as of 11:45am PT.
Politics and the price of Bitcoin
Bitcoin’s move higher came as President Trump ended the moratorium on fiscal stimulus discussions between his administration and the Democrats. His imposing of the moratorium resulted in a multi-percent correction in BTC, equities, and gold early last week. The stimulus bill is still up in the air, though, as both sides of the aisle discuss what exactly should be included and how much it should cost in aggregate.
Over the past week, there was also much discussion about how a Democratic win could affect markets because the Presidential Election is just three weeks away. Wall Street analysts, including those at Goldman Sachs and Bloomberg, and analysts in the cryptocurrency space have both commented that the country turning blue could drive the dollar lower, which would aid gold and Bitcoin.
On-chain data: short-term trend is “slightly bearish”
IntoTheBlock, a blockchain data and analytics firm, reports that the fundamentals of the Bitcoin network remain bearish.
Data from the firm current as of the morning of October 13 shows that the cryptocurrency is “mostly bearish.” Three out of seven of its core on-chain and market metrics are printing “bearish” signals. Three other metrics are “neutral” and only one is “bullish.”
Like our last two Bitcoin Moves reports, 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.
The other “bearish” metric is “futures market momentum,” which tracks price action, open interest, and volume on Bitcoin derivatives platforms. It is likely that the momentum is currently bearish because volume and open interest has dropped dramatically on BitMEX, which is being charged by the U.S. CFTC over derivatives violations.
While IntoTheBlock’s metrics are still signaling caution, it’s worth noting that Coin Metrics has noted that long-term on-chain trends remain positive. The firm released an extensive Twitter thread this past week highlighting six core on-chain trends indicating underlying strength to the Bitcoin network.
These include but are not limited to, Bitcoin’s market value to realized value ratio entering a macro uptrend, the supply of BTC on exchanges dropping dramatically, and the number of Bitcoin whales (1,000+ coins) increasing to new all-time highs. Coin Metrics said that many of these trends are the exact same trends Bitcoin printed prior to 2017’s parabolic rally, which brought the coin from under $1,000 to $20,000.
All eyes on China
A number of analysts in the space are keeping an eye on China this week. Chinese President Xi Jinping will deliver a speech in Shenzhen, marking the 40th anniversary of Shenzhen’s establishment as a special economic zone. Shenzhen is China’s tech hub, often dubbed the “Silicon Valley of Asia.”
The Chinese leader is expected to speak on technological developments, which may include China’s central bank digital currency (CBDC), Bitcoin, and blockchain technology as a whole.
In regards to Bitcoin in particular, Chinese state media recently promoted Bitcoin. CCTV, the state broadcaster followed by hundreds of millions, along with a number of state papers, published articles mentioning how cryptocurrencies are the best investment of 2020 due to inflationary trends and DeFi.
Bitcoin has a long history of reacting to comments on cryptocurrency and blockchain by Chinese officials and agencies. In late October of 2019, after President Xi said China has committed to adopting blockchain as a core technology, bitcoin spiked approximately 40% in 24 hours in the midst of a medium-term bear trend. In 2017, after officials banned Bitcoin trading, the cryptocurrency plunged by 50% in a few days.
Institutions continue to enter Bitcoin space
Boosting Bitcoin is news that institutions continue to enter the cryptocurrency space with dozens of millions of dollars.
On Tuesday morning, Forbes reported that Stone Ridge Asset Management has accumulated $115 million worth of bitcoin, or 10,000 coins to be exact. This investment represents approximately 1% of the firm’s assets under management. Of note, it wasn’t disclosed at what price the company closed this 10,000 coin purchase at.
The investment has purportedly been in the works for at least three years. Stone Ridge co-founder Robert Gutmann said that over the past few years, staff at the firm have been personally investing in Bitcoin with so much capital, that auditors had to ask questions. Stone Ridge’s clients echoed this desire to own the cryptocurrency, resulting in the company launching a subsidiary that could custody coins and execute large trades for institutional players such as itself.
As to why Stone Ridge has allocated such a large amount of capital to Bitcoin, Gutmann said that he and his clients think that the “long term growth of an open-source monetary system” will be captured by assets like BTC. He added that the COVID-19 pandemic has altered the firm’s views on how portfolios should be constructed, resulting in them purchasing bitcoin.
This comes shortly after a number of other notable Bitcoin acquisitions.
Namely, late last week, leading financial technology company Square deployed one percent of its assets into BTC. The firm purchased 4,709 coins for $50 million. Square is a $80 billion company led by Jack Dorsey, who is also the CEO of Twitter. The company is actively involved in cryptocurrency and deploying grants for Bitcoin developers — just like OKCoin.
Fidelity Investments, a $2 trillion asset manager, is advising institutional investors to bolster their exposure to bitcoin.
In a report released on the morning Stone Ridge announced its strategic decision, the wall Street giant told readers to “consider a portfolio with a target allocation of 5% bitcoin.” Fidelity explained that the cryptocurrency has a unique position in that it allows investors to increase the risk-adjusted returns of their portfolio by allocating a few percent of their capital to it:
“There are reasons why bitcoin could continue to serve as a portfolio diversifier and return enhancement tool. Bitcoin’s fundamentals are relatively shielded from the economic impact of the COVID-19 pandemic… Bitcoin is also unique in that it continues to be influenced by retail investor sentiment and can capitalize on the shift in the way retail investors interact with traditional markets and consume financial information as well as the transfer of wealth to the millennial generation over the next 10 years”
