Bitcoin Fundamentals- Briefing May 2019
This month is becoming a turning point for Bitcoin. Price shows three times growth to 9K level, and everybody asks the same question – is this it? This is a new long-term bull trend or not yet. As technically as fundamentally, we see some signs of reversal. Actually, we talk about it almost every day in our videos on the Bitcoin market.
Indeed, technically, it might be a reversal. In fact, Bitcoin has formed a bullish reversal swing on a weekly chart. It means that in a long-term perspective, upside action has good chances to continue. Last month we mentioned an interesting report by Adamant capital. They conclude that bear trend is over and the market stands in a period of “accumulation” when the relative balance between sellers and buyers stand. When the rest of selling offers are absorbed, bitcoin should move higher – that what has happened this month. Adamant uses a wide amount of forecasting tools.
But don’t be upset if you’ve missed a recent rally. To be honest, personally I almost always miss or skip the initial rally to take a position on the retracement. It is safer and gives you more confirmation on the reliability of the rally.
Now it is the same story on Bitcoin – as first upside rally will be over – we should get meaningful retracement, 30% at least, I suppose. This is what we’re watching right now.
Like almost every month – we have some important issues in May as well. They were not too many. As you understand, most of them are positive.
First news is from ICE Exchange and its Bakkt project.
We keep an eye on it through the year, and it seems that now it comes to launch:
Bitcoin Futures & Custody: Bakkt’s differentiated approach (as of 13th of May)
“Today, we’re pleased to update you on the launch of bitcoin futures contracts developed by Bakkt in collaboration with ICE Futures U.S. and ICE Clear US. We’ve worked closely with the CFTC to develop contracts that both meet our customers’ needs for trading, transparency, and market certainty, and are also compliant with Federal regulations.
In conjunction with our exchange and clearing partners at ICE, we’ll be working with our customers over the next several weeks to prepare for user acceptance testing (UAT) for futures and custody, which we expect to start in July. We’ll provide more details in upcoming posts, but we expect to use UAT to ensure that customers have time to onboard and can test the trading and custody model we’ve built to their satisfaction.”
If you’re interested with this subject, guys, the article also provides the trading parameters of Bitcoin futures contract on ICE
It is worthy of our attention as it specifies a lot of types of analysis and different indicators to provide a broad view of ongoing processes on cryptomarket.
They look at pattern recognition, mining, the value of transactions, and a lot of other moments. For example, they write:
“Meanwhile, the number of confirmed transactions per day has continued to increase in May to an average of 387K/day-to-date, up from 366K/day in April. Recall that recent lows were set in March of 2018 when bitcoin averaged 185K transactions/day.”
“The daily number of unique addresses used on the Bitcoin blockchain, which is the key input to our Metcalfe’s Law analysis, has increased to an average of 508K addresses so far in May, up from 497K addresses in April. The average number of addresses has now increased for five consecutive months.”
In general, Canaccord tells:
“That said, there are a few possible recent catalysts for bitcoin’s recovery. Perhaps most important is Fidelity’s continued push into space. After the asset management giant launched Fidelity Digital Assets last October and custody service in March, numerous reports suggest the launch of an institutional digital assets trading business within the next few weeks. Fidelity also released a survey of 411 US institutional investors which found that 40% are open to owning digital assets within the next five years. Another factor may be Grayscale’s “Drop Gold” advertising campaign, which hit airwaves recently and targets a digitally native investor base that may prefer bitcoin to gold as a non-government store of value investment. Yet another could be several corporate crypto initiatives from the likes of Facebook, Nike, and others gaining attention in the media. In any event, bitcoin is so far one of the best-performing assets of 2019.”
Next positive news stands for miners. As Longhash.com points –
“According to information presented on Messari.io’s OnChainFX rankings, Bitcoin accounted for nearly USD 580 thousand in fees in the last 24 hours. On May 10, 2019, at 9:50 am UTC, Bitcoin miners earned more than eight times the transaction fees than the combined total of all other cryptocurrencies listed on the site.
These figures illustrate a significant gap when it comes to the amount of fees that the miners of popular cryptocurrencies are earning each day. While many proponents will likely cite this as a win for altcoin users, who are theoretically left with less fees to pay when sending transactions, Bitcoin’s daily fees are an example of the currency functioning as its creator(s) intended.”
Fees for transaction priority becomes an almost equal source of income, compares to mining reward for new block creation. As you know, Bitcoin new block reward soon should drop twice – from 12.5BTC to 6.25 BTC. Now miners actively start to provide their mining power to process transactions as it provides good earn as well. This, in turn, means, that transactions amount (as Canaccord stated as well) is high enough to feed miners and compete to mining reward.
Another news is dedicated to Etherium. Although this is a different cryptocurrency, but news stands about government regulation and a positive sign for the whole market:
The U.S. Commodity Futures Trading Commission (CFTC) is willing to approve an ether futures contract – provided it ticks all the right boxes, a senior official has told CoinDesk.
The CFTC, which oversees derivatives markets in the U.S., has already allowed bitcoin futures markets to launch, with both CME Group and Cboe Global Exchange offering cash-settled contracts at the end of 2017.
Now, the regulator is willing to oversee a similar product for ether. Currently, the world’s second-largest cryptocurrency by market cap said the official. “I think we can get comfortable with an ether derivative being under our jurisdiction,” said the person, who did not want to be identified because the regulator does not typically publicize decisions to adopt new products. “We don’t do bold pronouncements, what we do is we look at applications before us,” the official said, explaining:
“A derivatives exchange comes to us and says, ‘we want to launch this particular product.’ … If they came to us with a particular derivative that met our requirements, I think that there’s a good chance that it would be [allowed to be] self-certified by us.”
The sentiment of the market is also starting to change –
As it was reported on 16th of May – A 10,500 BTC short position was closed on the Bitfinex exchange on Thursday as Bitcoin experienced a flash sell-off from its $8,300 top.
Long/short dynamics on the major exchange dropped from 52% short to under 40% in a matter of minutes.
The 12% change in the long/short ratio can be seen as a bullish switch in sentiment as the total number of margin shorts has fallen from an early May high of 32,000 BTC to its current level of just under 17,000. The $130 million in total margin short interest is trading in the BTC/USDT market, which has a verified volume of close to $200 million of trading action every day.
Next research is from Genesis, as it tries to investigate the most important question for the whole crypto market – institutional investors’ interest in cryptocurrencies. Thus, they come to a conclusion that –
– GBTC’s assets under management (AUM), which in this case is just the value of all the bitcoins held in the fund, reached a 10-month high of $1.42 billion;
– By the end of April, Grayscale held 225,638 bitcoins or just under 1.3% of bitcoin’s total circulating supply
Bitcoin inflows, or the amount of bitcoin added to GBTC’s holdings, have reached an all-time high in April signaling an increase in institutional demand;
– The GBTC premium is currently nearly 40% and has increased consistently since December, which shows a shift of the sentiment in the market.
Grayscale Bitcoin Trust (GBTC), a $1.4 billion closed-end fund that invests exclusively in bitcoin, serves as perhaps the best indicator of institutional investment in bitcoin. And the data is showing an uptick in the institutional demand.
Only qualified, accredited investors can invest directly in GBTC with a minimum investment of $50,000. Grayscale said that 80% of investment in 2018 came from institutional (66%) and accredited investors (14%).
GBTC gives investors an opportunity to get exposure to bitcoin through a traditional investment vehicle with shares titled in the investors’ name. Xapo holds bitcoin in cold storage vaults on behalf of Grayscale, which then charges an expense ratio of 2% that diminishes the value of the fund over time.
And it’s a lucrative business. According to The Block’s estimates, Grayscale has collected $52 million in fees from GBTC in the last three years; $14.9 million in 2017 and $27.3 million in 2018.
GBTC’s assets under management (AUM), in this case, the value of all the bitcoins held in the fund, reached a 10-month high of $1.42 billion on Friday.
The share of total bitcoin held in Bitcoin Trust reached an all-time high in April.
Next news is comments free as you understand everything from the name –
Of course, recent changes in the market couldn’t pass unmarked. The rally on the market open source of a large number of traders’ opinions and forecasts. Many of them hold the same opinion as we do – retracement on the bitcoin stands right around the corner and it will be the best buy opportunity:
1. Mark Yusko, the Head of Morgan Creek Capital, tells on CNBC that any investor has to have cryptocurrencies in investing portfolio. As he said – investments in crypto will overcome S&P in the foreseeable future;
2. Peter Brandt expects Bitcoin to hit 10615$ target in the near term. Our forecast is 9050-9500$.
3. Weiss Ratings – ” The best chance to buy Bitcoin comes soon – on the nearest retracement.”
4. These are the next big catalysts for the bitcoin rally – Brian Kelly, the head of BK Capital Management, says to CNBC. He advises putting 1-5% of total assets in cryptocurrencies.
Finally, guys, we have negative news as well, but we would ask – have you seen any negative reaction on them? Nope. This is another bullish factor, when markets ignore negative news, showing underreaction on them but overreacting on positive ones.
This month SEC again has postponed the registration of SolidX Management LLC Bitcoin ETF, there were some technical problems on Binance exchange, but all these moments have passed silently.
Thus, as a bottom line – May is becoming a turning month on the crypto market as we get a lot of positive shifts that are obvious and come from different spheres of Bitcoin space – fundamental data, statistics, sentiment, and technical analysis.
Her we want to put Canaccord Genuity pattern where they compare 2011 – 2015 rally and the current moment. They said in the report:
“With Bitcoin up over 90% from lows reached last December, renewed interest from all quarters abounds. As we think about what may lie ahead, for the third time, we note that Bitcoin’s price action from 2011-2015 continues to provide a reasonably good roadmap for 2015-2019. This framework suggests a long-term recovery beginning in the April-May time frame (right about now), followed by a very slow climb back to old highs in March of 2021. A close look at the chart suggests that the current recovery may be slightly ahead of itself at the moment. As always, we caveat this observation with the obvious – this is simply pattern recognition and not reliable fundamental analysis.”
But we want to believe that this will be not “simply the pattern”, right?
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