Is the bottom in?

The markets are considered to be boring right now. Price is dancing around the $6,000-$7,000 levels, people aren’t panicking anymore, the S&P 500 is rallying, countries are easing their lockdown rules. It almost seems as if people think things are getting back to normal. Then there’s this big whale topic in the room- the halving… It’s now only 26 more days.
Let’s take a look at what the markets are doing, what the bitcoin whales are up to, and step away from the markets. Instead, let’s look at mining and the halving.

Correlation S&P 500, Gold, Bitcoin

Markets are still extremely correlated. The stock market has made headlines for having seen the largest 1-day rise since 1933. Bitcoin has seen a correlated rise with of course higher volatility. Gold is almost breaking its 2010 high, this definitely shows that people are still looking to allocate their funds to “safe haven” assets. Overall all markets have needed a cooldown and I don’t think this is anything extraordinary the next weeks shall stay interesting. 

Correlation S&P 500, Gold, Bitcoin

Now with correlation clearly still being here let’s look at the Bitcoin dominance

Bitcoin Dominance

Bitcoin Dominance

Bitcoin dominance continues to drop, this essentially means people are moving into altcoins. Considering the aspect of Bitcoin being digital gold and the current time we are in it would seem like the belief in Bitcoin is bigger than ever and people would want to be holding Bitcoin rather than speculative altcoins? What this does show however is that the money coming in from the outside of the crypto space into Bitcoin is still relatively small. Crypto investors clearly see an opportunity in these low altcoin prices. 

Where is the Bitcoin volume coming from?

Where is the Bitcoin volume coming from?

It’s definitely not coming from institutions. These currently have other things to worry about than trading a very volatile asset. These are the futures contracts that are not physically backed. Meaning it does not take into consideration institutions that may be buying spot Bitcoin. 

Bitcoin futures contracts graph

Source: bitcoinity.org

The volume is clearly coming from retail, we haven’t seen such high volume since the boom in 2017. If we solely look at the change in volume we could definitely say the bottom is in. 

Sentiment and Onchain Metrics

Let’s take a look at some on-chain metrics and the fear & greed index to look at how the current crypto ecosystem is viewing the current market situation.

The Fear & Greed Index is still at record low levels, of course after the crash this is nothing surprising but since the crash, it hasn’t moved much. So is the bottom in?

Bitcoin fear and greed index

The bottom certainly could be in: Bitcoin Number of Whales 

Number of Bitcoin whales

Source: https://insights.glassnode.com/the-week-on-chain-9-apr-2020/

The number of wallets that have more than 1000 Bitcoins is steadily increasing. Interestingly enough at a similar pace as in 2016. These addresses often HODL their coins meaning that supply is reduced. With the halving coming up will this have a similar effect on price as in 2016?

The halving 

The halving is only 26 days away, of course the miners will realize this effect the largest. This is the time where miners will get squeezed and need to see whether they will still be able to mine profitably or not after the halving. With the current price level of Bitcoin, it makes things very interesting.

Bitcoin at a price of $7,500 after the halving

Bitcoin mining profitability after halving

Source:https://www.blockwaresolutions.com/research-and-publications/2020-halving-analysis

As we can see here a very small amount of Bitcoin miners that have “old” S9 machines will be profitable, while the miners with newer S17 machines will largely stay profitable. 

The effect this has on the price is potentially drastic. Miners may have to sell Bitcoins to be able to fund their operations or maybe even the newer mining machines want to keep the price low so that miners with old machines actually have to shut down their machines as they can’t compete.

If you want to read more about the miners and the halving you can do so in a simple write up here:
https://medium.com/@squirrelcrypto/simple-mining-and-the-effect-it-has-on-the-halving-df245d79cb5e

So overall the Bitcoin and crypto market looks like it’s recovering well from the massive drop in March. With correlation being so strong however, we will need to take a look at the traditional markets and how they will be doing over the coming weeks, or possibly the decoupling of correlations happening. Bitcoin whales don’t seem to be phased about the drop and neither does general retail investors (considering volume). Lastly, the halving only being a few days away will make price actions and volatility even more interesting.

Onwards and upwards.

Written by Alex- Co-founder Accointing

Feel free to reach out to me: alex@accointing.com

www.accointing.com 

DISCLAIMER: Be aware that the activity of cryptoassets mentioned in this article is unregulated. This article must not be construed as investment advice. Always do your own research.

Comments (No)

Leave a Reply