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Is the sustained rise in Bitcoin values due to a steady stream of positive news, or is there anything else at work?
The speculation about the current run’s length is relentless, with Bitcoin already a consistent news story even in the national press. So what is causing the BTC price to rise? Is it just the constant barrage of positive news, or are there on-chain metrics that can forecast potential market movements?
Since retesting the $50,000 mark in early March, the price of Bitcoin (BTC) has remained relatively stable above that level. Even a pullback in the final week of March couldn’t keep the price from rising to a new all-time high above $65,000.
The FOMO effect
The statement that good news is boosting the economy is self-evident, precisely because there has been an undeniable FOMO snowball effect among institutions in recent months.
The bull run began in the fourth quarter of 2020, and the fact that rates abruptly soared in October after reports that PayPal was joining the cryptocurrency domain cannot be overlooked. JPMorgan unveiled the long-awaited JPM coin, which fueled more bullish sentiment.
This year, MicroStrategy went on a massive acquisition spree, backed up by Tesla’s $1.5 billion investment. The expansion of service offerings to cryptocurrencies by large banks such as Goldman Sachs and Citigroup lends credence to the point that cryptocurrency is taking its place as an existing asset class. Recently, the hype around Coinbase’s Nasdaq listing — the first of its sort in the crypto sector — has also contributed to ensuring that digital currencies stay squarely in the global news agenda.
On a macro basis, the continuing drive to have a Bitcoin ETF authorised by US regulators adds to bullish sentiments — however, according to one expert, it may be another two years until approval is granted.
Was $25,000 an institutional price trigger?
While the theory that good news is propping up Bitcoin prices may not create a long-term bull case in and of itself, the market action has evidently been sufficient to make big investors and institutions sit up and take notice. A report from eToroX published in January, which interviewed institutional players, seems to agree with this notion.
According to the paper, BTC must hit a high enough price to be appealing to institutions while other barriers to entry, such as regulatory risk, the potential for fraud, and access to the appropriate infrastructure, are considered. One respondent also went so far as to set a price threshold of $25,000, showing that existing rates are more than sufficient to keep institutional investors interested.
According to Johnny Lyu, CEO of KuCoin, underlying concerns about the condition of the broader markets are also influencing institutional cryptocurrency acceptance, telling Cointelegraph: “The recent rise is related to the fear of long-term quantitative easing and global inflation.” He went on to state that “trading behaviour on KuCoin shows that Western investors are more involved in this run than their Asian counterparts.”
The reasoning behind this is that Western countries have proved to be less capable of dealing with the spread of COVID-19, resulting in increased budget expenditure and a greater economic effect. However, according to Robbie Liu, a business analyst at OKEx Insights, there is still considerable demand from Asian investors. He emphasised that the demand for stablecoins is a positive sign:
“In the Asian market, USDT also entered a positive premium since March, meaning one USDT has traded above one U.S. dollar. This premium similarly reflects strong demand for access to the cryptocurrency space.”
When good news isn’t necessarily good news
The problem with the notion that markets are solely influenced by optimistic sentiment generated by news reports is that it does not provide an argument for long-term market stabilisation. Simply put, if the good news stops, prices could reverse, causing a similar snowball effect of bad news in a falling economy.
From this vantage point, it is worthwhile to investigate some of the on- and off-chain fundamentals that might be driving prices. There are many grounds to be optimistic about this situation. However, fundamentals say that the 2021 bull run is far from over. According to Glassnode results, the amount of BTC carried on exchanges is on a persistent downward trend, reducing liquid supply.
However, the number of addresses holding over 1,000 BTC recently hit an all-time high, indicating that more whales than ever are choosing to hodl. Miners have also recently joined the trend, stacking more BTC than they’re selling. If to use the theory of market cycles, it seems inevitable that the bull run will end at some point — the question is when.
All signs point to hodling
If recent sale action is any indication, the plateau is still some time away. According to a recent survey, long-term investors are hesitant to sell their shares, which usually happens during the second half of a business cycle when they look to benefit. Based on recent market peaks, this bull run is especially rare. Profiteers usually cash out after keeping for one week to one month. They’re hodling firm in this situation.
The understood hodl ratio map also supports this viewpoint, as it is consistently associated with all past reversals in BTC macrocycles. As seen in the chart below, as the ratio rises above 50,000, the stock market is about to hit its apex.
If history will predict the future, it would reveal that the bull run is just about halfway through, implying that a $100,000 BTC by the end of the year is well within reach. Jason Deane, a Bitcoin analyst at crypto consulting company Quantum Economics, declined to make a price forecast. However, in an interview with Cointelegraph, he stated:
“Over the longer term, the continued reduction in available Bitcoin on exchanges is very likely to become a bigger factor in price discovery as more and more is removed for very long-term cold storage and new supply, via future halvings, continues to reduce.”
Igneus Terrenus, head of communications at Bybit exchange, believes that the latest derivatives speculation will say a lot about what to expect for the rest of 2021. “With June, September, and December futures trading at high premiums, we can surmise that the market is betting on the bull run to continue for the rest of 2021,” he told Cointelegraph. He went on to say that “in the long run, where BTC price goes is as much dependent on its fundamentals as the strength of the [US] dollar.”
$500,000 and beyond?
The stock-to-flow forecasts, according to quant analyst PlanB, show that the bull market is in an earlier stage of the cycle than the hodl stats suggest. The analyst’s “Situational Awareness Stock-to-Flow Cross-Asset Model” map has tracked recent bull markets with startling accuracy, and investors are hoping that this one will be no different.
My favorite chart for Situational Awareness: S2FX for rough long term level forecast (white line), combined with accurate on-chain bull/bear recognition signal (color overlay). #InOrbeTerrumNonVisi pic.twitter.com/KZcZCzldgI
— PlanB (@100trillionUSD) April 4, 2021
Extrapolating the latest bull/bear identification signals, PlanB’s S2FX model forecasts a 2021 high of $288,000. The price peak over this Bitcoin mining incentive halving period, on the other hand, could reach $576,000, with the 2021 maximum becoming an average for the entire cycle.
If this seems to be an optimistic goal, keep in mind that there is no precedent in Bitcoin history for the kind of retail inflows that are currently being witnessed, let alone the absence of liquidity as investors seek to stockpile their holdings. As a result, even recent bull trends may be unreliable predictors for this cycle.
Overall, solid fundamentals coupled with a persistent sense of FOMO among organisations suggest that there is a strong argument to be made for assuming that this bull market will last for some time.