As bitcoin moves higher, the institutional wave grows — today BTC hit $12k, an important psychological level for traders
Bitcoin (BTC) continued its ascent this week. Bottoming at $11,200 last week after a brief sell-off, the cryptocurrency rocketed higher. This bullish price action culminated on Tuesday morning with a move to $12,000.
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TL;DR
- Bitcoin has begun to push higher after bottoming at $11,200 late last week.
- Bitcoin outperformed altcoins this week, with some leading DeFi players dropping 10–20% from last week’s highs.
- Macro trends seem to favor further growth in the bitcoin price as central banks continue to push for central bank digital currencies.
- This week also saw more news regarding a mass institutional accumulation of BTC.
- Some short-term headwinds that bitcoin faces is currently bearish on-chain data.
Here’s your market snapshot:
All prices are in USD and time zones are PT. Prices are as of 9:30am PT.
Bitcoin reaches the $12k mark
Bitcoin has yet to surpass and hold above this level since summer 2019, which has been highlighted by analysts as an important technical resistance level. The level has acted as resistance over the past three years, marking the weekly highs of 2019 and the weekly highs earlier this year in the summer. This makes $12,000 an important psychological level for traders.
Surprisingly, altcoins seriously trailed bitcoin amid this move higher. OKCoin market data indicates that leading altcoins such as ethereum, litecoin, and bitcoin cash have sunk 2–3% lower as BTC has gained 2%.
On why Bitcoin is moving higher, OKCoin’s Melvis Langyintuo said that the move cannot be pinned to a single event. However, he noted that there are some positive economic trends such as strong Chinese GDP data and strong earnings for U.S. companies relative to what some expected.
Yet with the introduction of election uncertainty, a potential second wave for the COVID-19 pandemic, and the subsequent negative economic effects a second wave would have, bitcoin does face some strong resistance at $12,000. OKCoin’s Melvis Langyintuo said:
“This nice rally in BTC could be short-lived as well because looking outside the crypto market, there are still market risks surrounding the US elections and mail-in voting and as of late in many regions around the world, new COVID infections are starting to resurge. […] The road to surpassing BTC 12k and maintaining a stable price there may experience strong resistance.”
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.
IntoTheBlock data current as of the morning of October 20th indicates that three out of seven of Bitcoin’s core on-chain and market metrics are “bearish.” The metrics defined as “bearish” by the analytics company are net network growth, concentration, and large transactions.
Net network growth tracks the number of new bitcoin addresses relative to addresses that are deprecated by users. Concentration tracks the concentration of bitcoin in “whale” addresses, where a decrease suggests bearish distribution and an increase suggests bullish accumulation. And large transactions tracks the number of BTC transactions valued at over $100,000 over any 24-hour period.
Only one of the seven core metrics that IntoTheBlock tracks was bullish: futures market momentum. Futures market momentum weighs open interest and volume to determine if the average bitcoin futures trader is bullish or bearish.
The current state of bitcoin’s on-chain and market trends can be seen below.
Willy Woo, a prominent on-chain analyst, has argued that the value of some on-chain trends is starting to diminish as investors begin to favor transacting off the Bitcoin blockchain.
“BTC Momentum suffers from changes of on-chain behavior. We’re in an era where layer-2 is dominant, also 2017 had huge BTC movements for ICOs including syndicate buys pooling BTC, increasing the volume, 2020 it’s done on ETH and exchanges. Time to deprecate.”
He elaborated that more reliable measures of Bitcoin’s on-chain standing indicate that BTC is in an extremely bullish position on a macro time frame.
“The on-chain fundamentals which are 3–6 weeks at the minimum timeframes are still unchanged in bullish mode, if we do get a pullback, I’d take it as a chance to deploy capital into BTC if you missed it in the 10k zone.”
Institutional accumulation continues
News of institutional players accumulating bitcoin continued to trickle in this past week.
A report released last week revealed that digital asset manager Grayscale Investments had taken in $1.05 billion worth of deposits over the third quarter of 2020. The flagship product, the Grayscale Bitcoin Trust (GBTC), absorbed $719.3 million worth of bitcoin. The Trust now holds more than $4.7 billion worth of BTC, or more than 2% of all coins currently in circulation.
What makes this figure notable is that 84% of Grayscale’s Q3 inflows came from institutional clients. The firm specifically mentioned hedge funds and family offices as big buyers of shares of the Trust.
This comes hot on the heels of other reports signaling that institutions have been increasing exposure to bitcoin.
Early last week, $10 billion asset manager Stone Ridge Asset Management revealed that it had accumulated $119 million worth of bitcoin, or 10,000 coins, to be exact. This came shortly after both MicroStrategy and Square made headlines by deploying some of their corporate treasury into bitcoin. MicroStrategy put a majority of its treasury into BTC while Square deployed 1%.
Retail investors, too, seem to be buying bitcoin. Pseudonymous cryptocurrency trader “Z” recently noted that there has been a mass accumulation of bitcoin amongst retail traders over recent weeks.
Analysts think that the capital flooding into the cryptocurrency market will cause a “shortage” of bitcoin, driving prices dramatically to the upside as supply begins to outweigh demand.
Dan Tapiero, co-founder of Gold Bullion International, commented on the matter:
“SHORTAGES of #Bitcoin possible. Barry’s @Grayscale trust is eating up btc like there is no tomorrow. If 77% of all newly mined turns into 110%, it’s lights out. Non-miner supply will get held off market in squeeze. Shorts will be dead. Price can go to any number.”
Raoul Pal, CEO of Real Vision has echoed the sentiment. Commenting on the institutional trends in the cryptocurrency space, he said to Stansberry Research:
“Just from what I know from all of the institutions, all of the people I speak to, there is an enormous wall of money coming into this. It’s an enormous wall of money — just the pipes aren’t there to allow people to do it yet, and that’s coming. But it’s on everybody’s radar, and there’s a lot of smart people working on it.”
He added in that same interview that bitcoin could hit a price of $1,000,000 this market cycle.
The trend of institutions building and increasing their crypto positions comes as Fidelity Investments released a report indicating that having exposure to bitcoin is a net positive for most portfolios.
The Wall Street firm wrote that an allocation of 1–5% of bitcoin in a traditional “60/40 portfolio” could have increased returns and minimized downside over the past five years. Fidelity added that there are a number of other macroeconomic and geopolitical trends that makes it logical to own some bitcoin.
World’s top monetary leaders discuss central bank digital currency
The world’s monetary leaders continued to discuss central bank digital currencies this past week.
The International Monetary Fund held a seminar on Monday morning, convening some of the world’s monetary leaders to discuss CBDCs. In attendance was Federal Reserve Chairman Jerome Powell, IMF Managing Director Kristalina Georgieva, the head of the Bank of International Settlements Augstin Carstens, and two others. The seminar’s topic was “cross-border payments — a vision for the future.”
While Powell did not say if the U.S. is actively pursuing a digital currency, he noted that there are a number of benefits to launching one. Benefits he mentioned included faster and cheaper payments, the ability to bank the unbanked, and to more easily adjust monetary policy.
Carstens also said that the implementation of central bank digital currencies would allow the issuer to control and track the use of the currency.
The U.S. is likely to launch one, though, if the European Union moves forward with testing and pilot launches of its own digital currency next year and into 2022.
Shortly after Chinese President Xi’s speech in Shenzhen last week, China began the next phase of its digital currency roll out with an airdrop of 200 Chinese yuan to beta-testers/early-adopters.
Raoul Pal, CEO of Real Vision, says that this push towards central bank digital currencies will be decisively bullish for bitcoin and other cryptocurrencies. He believes that the introductions of CBDCs will allow central banks to stimulate the economy even further than they have, which should drive down the value of the U.S. dollar.
“Fiat globally will be worth less versus hard assets. And that means that gold and in particular #Bitcoin will become THE way to circumvent the system of ever lower value. It also creates incentive systems for other nations to opt into a hard currency system to attract capital.”
Bitcoin news debrief
Mt. Gox rehabilitation deadline pushed to December
A key news event bitcoin traders have been watching is the Mt. Gox rehabilitation proceedings. Mt. Gox is the first full-fledged bitcoin exchange; it collapsed in 2014 after hundreds of thousands of BTC was stolen over the course of a number of incidents. 150,000 coins were recovered by the exchange, which are expected to be distributed to the victims of the hack. Some fear that once the bitcoin is distributed, the price of the coin will dump as victims sell their coins for fiat. Fortunately for crypto investors, the rehabilitation deadline has been pushed to December.
Schnorr and Taproot merged into Bitcoin Core
This past week, Schnorr and Taproot, two cryptographic technologies, were merged into the Bitcoin Core client. This means that these technologies will likely become a part of the Bitcoin network when the upgrade is activated through a soft fork. These two technologies are crucial as they’re expected to increase Bitcoin’s smart contract capabilities while boosting the privacy of transactions.
