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The People’s Bank of China’s unusual acceptance comes as Bitcoin rebounds from a market collapse that sent it to $52,000.
As the shock of a weekend market collapse subsides, Bitcoin (BTC) is starting a new week grinding down to $60,000 per coin.
Bitcoin has spent the past two days steadily rebuilding its losses after falling to as low as $52,000 in a sudden sell-off situation. What comes next?
Stocks primed for “up only” short term
The macro picture in Asia and Europe is relatively stable, with markets in the United States yet to open.
Investors were met with a mixed bag at the start, but turbulence has been largely absent, with only oil displaying signs of more marked weakness.
As a result, equities movements are unlikely to have a significant effect on Bitcoin, which is predicted to maintain its record highs in the coming weeks.
In a note cited by Bloomberg, Russel Chesler, head of assets and capital markets at the Australian branch of crypto-friendly fund manager VanEck, caught the tone.
“Our current view is that with short-term interest rates set to remain low for the medium term and our expectation that earnings will continue to increase, it is unlikely that the increase in long-term interest rates will trigger an equity market fall,” he wrote.
Despite the stock market’s exponential rise, there were more confirmed official cases of the Coronavirus last week than ever before.
Economic reactions continue to differ, with countries’ new efforts to monitor the epidemic characterised by a patchwork of openings and closings.
Bitcoin recovers from $52,000 crash
The weekend’s activities, which saw a swift tsunami of selling push BTC/USD down by $7,000 in a matter of minutes, remain the biggest talking point in Bitcoin circles.
The accident, which occurred just over $52,000, mirrored many related incidents this year, and Bitcoin managed to recover about half of its lost ground within hours.
However, reactions are divided between those who see the uncertainty as “business as usual” and more conservative voices calling for the end of the new bull market.
As concerns centre on a Chinese power outage affecting hash rate, as well as rumoured legal action by US regulators against unidentified financial firms linked to money laundering.
Popular statistician Willy Woo blamed the losses on both China and jittery movements by futures traders in his own rundown of what happened.
“We just saw the single largest 1-day drop in mining hash rate since Nov 2017. The hash rate on the network essentially halved, causing mayhem in BTC price as it crashed,” he told Twitter followers.
Woo echoed the “reset” in an on-chain statistic, the expended transaction production ratio (SOPR), indicating that long-term buyers would certainly quickly stop selling entirely, indicating that the future could see fresh sustained upside.
“The on-chain SOPR metric near a full reset. A classic buy the dip signal,” he added.
“In simple terms, profit taking by longer term investors is completing, very little sell power left unless investors want to sell at a loss from their entry price. Unlikely in a bull market.”
Fundamentals point higher
It’s not just SOPR; a slew of Bitcoin network metrics and fundamentals are bolstering bulls’ cause, even though BTC/USD remains below even February’s peak of $58,300.
For Woo and others, the conversion of funds to buyers that have historically hodled rather than sold is especially important — another hallmark of Bitcoin’s recent growth.
“Serious strong-handed holders are buying this dip. In the last 24 hours, over 200,000 Bitcoin became illiquid, a 3-year record,” fellow analyst William Clemente added Sunday.
“This illiquid supply increase is not only just dip buyers with no history of selling, but partially accumulation from 5-6 months ago of which those wallets have just crossed the ‘illiquid’ threshold for this metric.”
Finally, about 13.5 percent of the overall available Bitcoin supply has been active over $53,000, reinforcing Bitcoin’s position as a trillion-dollar currency, according to Woo. Bitcoin’s market cap approaches $1 trillion at about $53,800.
“This drop occurred while an unprecedented number of new users are joining the network every day. Woo also stated that there has been a retail influx in the last 2-3 weeks, with overall wallet numbers approaching 10 million.
Difficulty takes care of miner woes
A closer look at hash rate, which dropped by nearly half at one point, reveals that a price-related rebound is underway.
According to preliminary calculations from the on-chain tracking resource Blockchain, the Bitcoin network hash rate is now back over 150 exahashes per second (EH/s), after breaking through the 200 EH/s mark for the first time in history last week.
Miners leaving the network due to power outages cause Bitcoin’s network complexity to decrease, incentivizing more people to join.
More evidence that the weekend’s problem was purely transient emerges from difficulty forecasts: as it next changes in two weeks, difficulty would only decline by about 4%, a minor decrease that may be cancelled out entirely as miners recover.
This combination of hash rate and complexity is perhaps the most critical feature of Bitcoin, allowing it to control itself and maintain protection and reliability in the face of unexpected incidents affecting network users.
Chinese central bank praises Bitcoin and stablecoins
Another unexpected phenomenon that is yet to be completely understood by the industry is China’s extraordinary acceptance of cryptocurrency as a “investment alternative.”
Speaking at a conference organized by CNBC, Li Bo, deputy governor of China’s central bank, the People’s Bank of China (PBoC), broke ranks to validate both Bitcoin and stablecoins.
“We regard Bitcoin and stablecoin as crypto assets… These are investment alternatives,” he said.
The comments are shocking given that, despite being a hub for Bitcoin mining, China has had a blanket ban on investing and transacting in cryptocurrencies in effect since September 2017.
“Every country that bans Bitcoin eventually reverses that ban. You simply cannot be competitive in the 21st century economy without it,” Charles Edwards, founder of investment firm Capriole, responded.
“China is playing 4D chess. The last 3 days have made very clear they still dominate global mining. Slowly, slowly then all at once.”
The market scarcely responded to this high-level endorsement of Bitcoin’s long-term viability. At the time of publishing, Bitcoin was still floating around $57,000, with no sign of a familiar resistance level strike.