While BTC has regained some of its recent losses, there are bitcoin fans calling this period a “speculative frenzy”
After last week’s rapid correction to $30,000 from all-time highs, bitcoin continued to consolidate this past week after failing a run at the $40,000 resistance level. The leading cryptocurrency’s consolidation gave space for altcoins to break higher, with ether setting a new yearly high as per OKCoin market data.
Bitcoin faced a strong correction last week that resulted in billions worth of position liquidations. The drop temporarily caused panic in the markets, along with statements by reputable traders that a short-term top was in.
The cryptocurrency has since stabilized between $34,000 and $37,000, above key support levels in the low-$30,000s. Analysts tend to lean optimistic here as there remain strong institutional inflows via Grayscale and positive on-chain trends suggesting accumulation by a growing number of investors.
TL;DR
- After facing a strong correction last week, bitcoin has entered a period of consolidation between $34,000 and $37,000.
- The cryptocurrency is sitting above key technical support levels in spite of the lack of upward momentum.
- This represents one of bitcoin’s longest periods of consolidation in this phase of the market cycle.
- Guggenheim Investments’ CIO remains somewhat bearish on bitcoin in the near term.
- Janet Yellen, the likely incoming Treasury Secretary, isn’t even in office yet but she’s already bashing bitcoin.
- Strong institutional inflows continue to take place, leaving many still optimistic about bitcoin’s medium to long-term trajectory.
Here’s your market snapshot:
All prices are in USD and time zones are PT. Prices are as of 2:30pm PT.
Guggenheim Investments’ CIO doubles down on froth fears
In last week’s edition of Bitcoin Moves, we highlighted comments from Guggenheim Investments’ Global CIO, Scott Minerd. At the time, he said that technical indicators were indicating that it was “time to take money off the table”:
“Bitcoin’s parabolic rise is unsustainable in the near term. Vulnerable to a setback. The target technical upside of $35,000 has been exceeded. Time to take some money off the table.”
Minerd doubled down on this call this past week when he told Bloomberg on Friday that he thinks bitcoin is in the midst of a “speculative frenzy” or mania. He specifically cited how certain exchanges became overloaded and could not handle the demand for transactions during the run-up.
He joins some of the few short-term bitcoin bulls. Another is Qiao Wang, a crypto-asset investor formerly of Messari and Tower Research. Indicating that the amount of speculation suggests bitcoin may be at a peak, Wang said on January 15th:
“IMO we are in a mini-bear market. Not enough conviction to short, and certainly think we’ll be a lot higher 6-12 months from now. Want to see speculators go away and spot buyers step up as invalidation. No clue yet how low we’ll go, but 20k-25k would hurt both bulls and bears.”
While Minerd appears to be bearish on bitcoin in the near term, Minerd’s long-term vision is unfazed. In the same Bloomberg interview, the investor postulated that bitcoin could see appreciation in excess of 900% in the coming cycle:
“2% of your portfolio will be 20% of your portfolio before this is over. So, you don’t want to get too overweight, but certainly an allocation of a couple % of your portfolio seems to be a prudent play.”
He once again cited bitcoin’s potential to become a mainstream store of value that rivals gold’s position due to its digital and truly scarce nature.
Grayscale sees massive inflows
Institutional digital asset manager Grayscale continued to see strong inflows this past week in a sign of continued Wall Street demand for bitcoin and other crypto assets.
The firm added $600 million worth of cryptocurrency to its coffers on Monday, indicating extremely strong institutional support for bitcoin. As the firm added bitcoin to its cold wallets on Monday and re-opened the Trust on Wednesday of last week, it is likely that institutions siphoned capital into Grayscale to purchase last week’s drop.
Singapore trading fund QCP alleges that as long as Grayscale sees such strong inflows, the bitcoin price will continue to march higher. The firm wrote early this week:
“Previously we highlighted GBTC as too big to fail in our new year update, and the sell-off on Monday/Tuesday peaked at the end of their 2-week fund suspension to new investors. On Wednesday they reopened again and this stemmed the selloff, as ~5k of BTC was added to their fund in just the 2 days since.”
This was echoed by JPMorgan analyst Nikolaos Panigirtzoglou.
Bloomberg reported that Grayscale’s inflows will need to continue if bitcoin is to establish $40,000 as a price floor. The analyst and his team wrote on the matter:
“The flow into the Grayscale Bitcoin Trust would likely need to sustain its US$100 million per day pace over the coming days and weeks for such a breakout to occur.”
Bitcoin bashed for its energy consumption
Bitcoin was branded a “giant smoldering Chernobyl sitting at the heart of Silicon Valley” this past week in a thread that went somewhat viral on Twitter.
A programmer known as Stephen Diehl said that since he thinks bitcoin is mostly used for speculative purposes and for crimes, the energy used by the network is a waste because bitcoin has no real or valuable economic value:
“Unlike other economic activities, the bitcoin scheme produces absolutely nothing for all this waste. It is a pure speculative activity of people gambling on the random movements of prices and the only output is simply shuffling numbers around in a computer at insane cost.”
Many in the space have rebutted these comments, pointing to the growing presence of renewable energies in bitcoin mining.
Further, companies such as Square have committed to putting capital toward more sustainable bitcoin mining practices. Square announced in December:
“Square, Inc. (NYSE: SQ) announced today its plans to become net zero carbon for operations by 2030, including its primary Scope 3 emissions. Square also announced the launch of its Bitcoin Clean Energy Investment Initiative, where it has committed $10 million to support companies that help drive adoption and efficiency of renewables within the bitcoin ecosystem.”
To-be Treasury Secretary Janet Yellen is already trashing bitcoin
Janet Yellen, the likely incoming Treasury Secretary, isn’t even in office yet but she’s already bashing bitcoin. Yellen’s nomination by the Biden administration must be confirmed by the Senate, though as the Senate is now controlled by the Democrats, she should be passed through.
She commented on Tuesday that cryptocurrencies are a “particular concern” in her opinion due to the fact they can be used to launder money and to finance terrorists. Countering on-chain data indicating otherwise, Yellen suggested that she thinks they are “mainly” used for illicit finance, as opposed to speculative trading activity or the transfer of value across the globe.
Her comments come after an extensive battle with the former Treasury Secretary, Steven Mnuchin, over a proposed regulation.
To recap: in December, the Treasury revealed a regulation that, if implemented, would require digital asset service providers to take the personal information of investors looking to withdraw more than $3,000 worth of cryptocurrency to their own addresses. The regulation suggested that bitcoin and other digital assets are actively used for money laundering, amongst other crimes.
Many in the crypto-asset space immediately rebutted the comments, saying that this regulation would be ineffective and actually redundant. OKCoin’s response to the situation can be found here.
The rebuttals worked, with the Treasury announcing this past week that it would be extending the public period for comment on the regulation. This extension put the implementation of the regulation to the Biden administration.
Initially, this was seen as a good thing. Mnuchin has long been an outspoken advocate against bitcoin. Yet some are now fearful that Yellen’s latest comments will see the Biden administration double down on Mnuchin’s efforts, instead of deferring them due to a lack of information.
On-chain trends
According to IntoTheBlock, bitcoin is currently “mostly bearish” as per their seven core metrics, which are based on on-chain trends and market data such as order books.
Fortunately for bulls, all seven of the platform’s core metrics are not “bearish” this week—much unlike last week. Instead, there are four metrics marked as “bearish.” These are net network growth, in the money, large transactions, and smart price.
The lack of network growth and large transactions may be a continued sign that retail investors continue to enter this market. As we covered last week,
Notably, IntoTheBlock’s “concentration” indicator is currently printing a “bullish” reading. This is in line with on-chain trends shared by other data providers that indicate that larger players, namely those that hold over 10-100 bitcoin, are in the midst of accumulating more of the cryptocurrency.
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