After bitcoin fell to $52,000 in a sudden drop, it has slowly recovered its losses over the past two days. What’s the next step?
Cointelegraph presents five factors to consider as a new trading week begins and cryptocurrency holders around the world lick their wounds.
Stocks held only for short periods
The macroeconomic situation is fairly stable in Asia and Europe, while the markets in the US are not yet open.
Investors were treated to a mixed picture at the opening, with volatility largely absent and only oil prices showing greater signs of weakness.
So the move in equities should not have a significant impact on bitcoin, and forecasts will continue to climb to highs in the coming weeks.
Russel Chesler, head of investments and capital markets at the Australian office of cryptocurrency-friendly investment manager VanEck, summed up the sentiment in a note cited by Bloomberg.
Given that short-term interest rates are expected to remain low over the medium term and we expect earnings to continue to rise, we consider it unlikely that a rise in long-term interest rates will lead to a decline in the stock market, he wrote.
Concerns about the coronavirus continue despite the steady increase in stocks. Last week, more official cases were reported than ever before.
The economic response continues to vary, with recent attempts by countries to respond to the epidemic characterized by frequent openings and closures.
Bitcoin recovers from $52,000 crash
In bitcoin circles, of course, the main topic of conversation remains the events of the weekend, when a sudden wave of selling sent BTC/USD plummeting to $7,000 within minutes.
The crash, which jumped just above $52,000, was reminiscent of several similar events this year, and bitcoin managed to regain about 50% of its lost ground in a matter of hours.
1-hour candlestick chart of BTC/USD (Bitstamp). Source: View of the shop
However, reactions are split between those who see volatility as a common occurrence and the more conservative voices who say the recent bull market is over.
As reported by Cointelegraph, suspicions center on the fact that the Chinese blackout has hit hash rates, as well as rumors that U.S. regulators have taken legal action against anonymous financial institutions linked to money laundering.
In his own analysis of what happened, statistician Willie Wu pointed to China and skepticism among futures investors as factors contributing to the losses.
Since November 2017, we just witnessed the largest 1-day decline in hash values in the mining industry. The network’s hash rate has essentially halved, causing the price of BTC to fall, he told his followers on Twitter.
In a sign that there could be new potential for sustainable growth in the future, Wu reiterated a reset of chain metrics, the production-to-completion ratio (SOPR), showing that long-term investors are likely to stop selling altogether soon.
The metrics of the SOPR chain are close to a complete reset. A classic buy signal on the downside, he added.
It’s simple: Profit taking by long-term investors is over and there is little left to sell, unless investors want to sell at a loss relative to their entry price. This isn’t a bull market.
base point over
It’s not just SOPR – a number of indicators and fundamentals in the bitcoin network have the bulls in their grip, although BTC/USD remains even below its February high of $58,300.
For Woo and others, the key is getting funds back into the hands of investors who traditionally prefer to buy rather than sell – another classic feature of bitcoin’s growth in recent months.
Flowchart of Bitcoin showing the transition to strong arms. Source: Willie Wu/Twitter
Serious people with strong hands buy this sauce. More than 200,000 bitcoins have become illiquid in the past 24 hours, a high in three years, William Clemente, another analyst, added Sunday.
This increase in illiquid supply is not only a drop in buyers with no prior history of selling, but also a partial build-up from 5-6 months ago that these portfolios just crossed the illiquidity threshold for this metric.
Finally, about 13.5 percent of all available bitcoins were active above $53,000, which Wu says confirms bitcoin’s status as a trillion-dollar asset. At about $53,800, bitcoin’s market capitalization is a good trillion dollars.
This drop comes at a time when an unprecedented number of new users are signing up every day. In the past two to three weeks, there has been an influx of retailers, Wu added, with the total number of portfolios approaching 10 million.
Difficulties related to minors
A closer look at the hash rate, which at one point had almost halved, shows that it has recovered in parallel with the price.
According to rough estimates from Blockchain, a blockchain regulator, the Bitcoin network’s hash rate has already surpassed 150 exahashes per second (EH/s), and passed the 200 EH/s mark for the first time last week.
Bitcoin Hash Rate Plan. Source: Blockchain
Miners leaving the network due to power problems make the Bitcoin network less complex to encourage more people to join.
The expected difficulties also confirm that the weekend problem could be temporary: in two weeks’ time, when they have been adjusted, the difficulties will only decrease by about 4%, a modest movement that could still be reversed with the return of the miners.
This balance between hash frequency and complexity is perhaps the most important aspect of bitcoin, as it allows bitcoin to sustain itself and remain secure and functional regardless of sudden events affecting network participants.
China’s central bank prices bitcoin andstables
In another unexpected development that is probably not yet fully appreciated by the market, China has made an unprecedented mark on cryptocurrencies as an investment alternative.
In a speech at a CNBC conference, Li Bo, vice governor of China’s central bank, the People’s Bank of China (PBoC), broke the rules to allow both bitcoin and stables.
We consider bitcoin and stablecoin to be cryptographic assets….. These are investment alternatives, he said.
These comments are surprising because although China is a bitcoin mining hub, it has completely banned cryptocurrency trading and transactions since September 2017.
Every country that has banned bitcoin eventually reverses that ban. Without them, you cannot survive in the economy of the 21st century. It just won’t be competitive in the 21st century, says Charles Edwards, founder of the investment firm Capriole.
China plays 4D chess. The past three days have made it clear that they still dominate the global mining industry. Slowly, slowly, then suddenly.
The market barely reacted to this confirmation of bitcoin’s strong long-term potential. At the time of writing, bitcoin is still hovering around the $57,000 level with no attacks on known resistance levels in sight.
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