Ready to fly?
So, here is the end of the summer already, guys. And we do not occasionally put the mammoth as our headline picture. August is an exciting month because, with the strong rally on BTC, we have very few forecasts and analysis on the market’s sentiment. And in general – overall interest in bitcoin has decreased slightly. It is a bit curious to see when the price is setting new records day by day. Some doubts remain, and the question slowly appears in minds – is BTC ready for the rally? What’s going on with the sentiment now, and what are the price targets?
Brief market overview
Bitcoin topped $50,000 for the first time since May as crypto prices continued an ongoing recovery from a disorderly rout just three months ago.
The revival in virtual currencies has excited the animal spirits of the crypto faithful, putting predictions of $100,000 or more for Bitcoin back in vogue. Others see the volatile asset carving out a wider trading range for now.
“We’re seeing some very bullish signs here,” said Vijay Ayyar, head of Asia-Pacific with crypto exchange Luno in Singapore. Bitcoin could “test all-time highs again” after pushing past levels that some had seen as major challenges.
Market sentiment also benefited from PayPal Inc.’s announcement that it will allow U.K. customers to make crypto transactions. It’s the first international expansion of PayPal’s crypto service beyond the U.S., and another hint at wider adoption of the industry.
The recovery since then has seen the value of the crypto universe tracked by CoinGecko reach about $2.2 trillion from $1.2 trillion a month ago.
Bulls haven taken heart from more recent comments from Musk and Ark Investment Management LLC’s Cathie Wood, as well as speculation over Amazon.com Inc.’s possible involvement in the cryptocurrency sector.
The hash rate — a measure of the computational power being put toward the Bitcoin network — has also rebounded from early-July lows, in a sign that the sector is adjusting after disruptions caused by China’s clampdown.
Musk last month said he’d like to see the token succeed and that he personally has bought Bitcoin, Ethereum and Dogecoin. Ark’s Wood said corporations should consider adding Bitcoin to their balance sheets.
Bitcoin is “getting nearer the higher end of what I expect as a new trading range in the low-$40,000s to low-$50,000s,” Rick Bensignor, chief executive officer at Bensignor Investment Strategies, wrote in a note Monday.
Ether has also been climbing, boosted by an upgrade to its underlying network that signals a more constrained supply of the token. The ADA coin linked to the Cardano blockchain has surged of late into third spot on technological enhancements that may make the network more useful.
One of the most important aspects of crypto assets — the dominance of dollar-backed trading — is measured indirectly in the BGCI (Bloomberg cryptocurrency index). Tether is the world’s most widely traded crypto. It’s a digital-dollar and Ethereum-based token.
A reason China may continue to push against open-source software crypto assets is the increasing dominance of the dollar. Free-market capitalism is on the rise via digital assets and unless enduring trends reverse, the U.S. dollar and Bitcoin stand to be primary beneficiaries. Graphic depicts dollar dominance, one of the most significant developments of 2021 in cryptos. When sorted by volume on Coinmarketcap, three of the top-six traded cryptos are digital dollars. This is happening organically on a global scale, and currencies from countries that are antagonistic to the greenback — namely China and Russia — have almost no trading presence via digital tokens.
Bitcoin is helping to bank the unbanked, and the primary up-and-coming country, China, doesn’t permit the free flow of capital or discourse.
Edward Moya, senior market analyst at OANDA in New York said that fears of capital gains taxation has led some traders to hold cryptocurrency as a long-term investment, removing some volatility from the market.
“New investors are the key to this latest bitcoin rally and all signs show they are comfortable with high risk,” he said in an email, adding that bitcoin “could see a fast appreciation here and might not hesitate making a run for $60,000 if appetite for risky assets remain intact.”
“The last time bitcoin was at $50,000, the Google trends (tracking website showing bitcoin searches) was much higher than what it is now,” Marcus Sotiriou, a sales trader at the UK based digital asset broker GlobalBlock, said in a note. This suggests that retail euphoria hasn’t entered the market yet and bitcoin has a long way to go in this market cycle.”
Usually we put the price forecast at the end of the report to relate logically market’s sentiment and overall fundamental background to price prediction. To make it consistent with each other. This time we put it ahead by two reasons. First is, because we have enough technical tools to make prediction and because our view mostly coincides with financial heavy-hitters. Second – is because this time we have not too many forecasts.
Bitcoin and Ethereum are discounted bull markets that solidified bases of support in June and July, as we see it, with the primary threat to resuming upward price trajectories a macroeconomic risk-off event.
Bitcoin appears to have built a base around $30,000 that’s akin to $4,000 at the start of 2019, and we see performance parallels that could get the benchmark crypto back on track toward $100,000. The longest period below its 20-week moving average since 2018-19 indicates weak longs have been cleansed within an enduring bull market. What’s changed in about three years is sufficient to sustain more of the same for most of Bitcoin’s history — rising prices. Supply is declining while demand and adoption are rising in most countries that welcome open discourse and free-market capitalism.
The Bloomberg Galaxy Crypto Index (BGCI) has gained about 105% in 2021 to Aug. 3 and we see probabilities tilted toward further upside. Consisting of 40% Bitcoin and 40% Ethereum, the index had a significant correction to the old highs from 2018 and appears well supported. It’s been about three years and we see a technical correction with broader bullish underpinnings. Bitcoin is becoming digital gold in a world going that way, while Ethereum is the go-to platform for the digitalization of money and finance.
Bitcoin and gold are poised to follow the resumed upward trajectory of U.S. Treasury bond prices in 2H, we believe. Probabilities are rising that bearish 1H consensus will turn out to be temporary and provide an opportunity for more-enduring bull markets starting from a discount.
When views that counter longer-term trends become consensus, probabilities often tilt back toward enduring trajectories, which is the bullish outlook we see for Bitcoin and U.S. Treasury long bonds at the start of August. Both have had substantial corrections that typically favor responsive buyers, rather than encouraging new shorts at unfavorable relative-value levels unless fundamental drivers have reversed. Our graphic depicts entrenched trajectories in declining bond yields and the rising price of Bitcoin.
We see bullish fundamental underpinnings for Bitcoin and bonds improving, thus favoring the enduring trends. They’re linked. Negative yields in Japan and much of Europe are a downward pull for the U.S and enhance the value of the upcoming digital reserve asset.
At the same time Mr. McGlone suggests that rising popularity of ETH could become a barrier factor on a way of BTC appreciation to 100K level. At some degree these currencies slowly becoming rivals.
People are beginning to realize that Ethereum is “the building block for all financial technology, DeFi and infrastructure in a world that is going digital,” McGlone said.
The expert named non-fungible tokens (NFT) as another powerful support for the Ethereum price. Such assets are becoming extremely popular and are mostly issued on the cryptocurrency blockchain.
At the same time, McGlone called the forecast of the former hedge fund manager Goldman Sachs and CEO of Real Vision TV Raul Pal about the growth of Ethereum to $ 20,000 overstated. Still, he suggests that ETH price will move above 4K level.
Our long term view on Bitcoin price
To set the upside potential for a long-term perspective, we use a combination of sentiment and technical tools. Currently, we see a favorable background for all dollar rivals and risky assets. Mainly because, as we suggest, the tightening cycle from the Fed postpones. As we often mentioned in our FX and Gold weekly reports, US statistics turn from robust positive data to flat numbers, suggesting that inflation as employment, consumption, sales, etc., are ceiling. This lets Fed not hurry with the tapering announcement, look around and make weighted decisions.
In our view, September and October should become decisive months as the value of statistics data is magnified. Suppose non-farm payrolls in September show so-so results with slow down in hourly earnings and fewer jobs. In that case, the tapering announcement could be postponed to November that will be bullish to all risky assets, including stocks, dollar rivals, and cryptocurrencies. We think that the probabilities of this event now stand significant. Thus, we treat fundamental and sentiment background positive for cryptocurrencies in the long-term, at least in 2H of 2021.
Speaking on the technical side, in our opinion mentioned fundamental reasons should help market to achieve 60K target first and 88-92K second:
This week has seen some minor profit realisation on-chain by long term holders, although so far it does not appear to be of significant coin volume to put the brakes on.
In what continues to be an amazing divergence, on-chain activity has still not responded to positive price action. Entity Adjusted transaction counts remain at historically low levels of between 175k and 200k transactions per day.
These low levels have been seen in a few instances in the past 5-yrs:
- The 2016-17 Bull Market during the disbelief rally and in deep mid-bull pullbacks.
- The 2018-19 Bear Market as interest in Bitcoin waned and prices corrected 85% from the high.
- The current period following the 50% correction in May and 2.5 months of consolidation.
Transaction volumes are similarly depressed, with the Bitcoin network setting around $18.8B in daily volume. This is 37% lower than at the 2017 bubble peak, and a whopping 57.6% below the peak set during the May capitulation event. That said, settlement volume remains 276% higher than the $5B that was typical throughout 2020, although we should account for fact that price has traded up from $10k to the current level approaching $50k (+500%).
Trend of rising average age has been in play since July and throughout this rally which suggests two things:
- Profits are being realised by old hands, confirming what has been observed in the charts above.
- The market is absorbing the sell-side so far as prices have continued to climb. This indicates there is sufficient demand to absorb the coins being distributed.
Despite significant divergence between rising prices and low on-chain activity, the overall supply dynamics remain extraordinarily macro bullish. This week, the supply held by Long-term holders has reached an all-time-high or 12.69M BTC, surpassing the previous peak from October 2020.
Through the Q1-Q2 bull market, LTHs distributed approximately 1.75M BTC which ultimately created oversupply, and put in the current ATH price top. Following that, investors dramatically slowed down their spending, and the coins that were accumulated in late 2020 and early 2021 have consistently matured across the ~155-day threshold for classification as ‘Long-Term Holders’.
The recovery of LTH supply to ATH has taken just 100-days which goes to show just how significant the accumulation was in the early phase of this bull market. The fact this trend has yet to slow down also demonstrates that significantly more coin volume is getting older, than younger. This adds further weight to the argument that the old hand spending observed this week is likely of low coin volume, and strategic de-risking, rather than a loss of conviction and a mass exit.
In derivatives markets, open interest for both Futures and Options has climbed alongside price to reach new local highs. After the precipitous fall from the $27.4B ATH during the May sell-off, open interest in Bitcoin futures markets has risen by $6B (+56%) from the lows of the recent consolidation. This week in particular, saw an increase of $1B in futures contracts opened as traders begin to take on more leverage.
In terms of directional bias for traders, the perpetual futures funding rate has a moderate lean to the long side. Funding rates have traded positive since late July as futures markets trade above spot prices. However, the magnitude of funding is nowhere near the peaks seen in the Q1-Q2 bullish trend. This may indicate that excessive leverage is not in play just yet, and perhaps the uptrend remains reasonably spot driven and healthy.
Options markets have also seen multi-month highs in open interest, rising by over $4.1B (+105%) since the lows set in June. The current level of $8.0B in open contracts is similar to levels seen during the May sell-off, and in Jan-Feb 2021. Note that prices were lower, trading around $30k to $40k, in both of these previous instances.
This too suggests that relative to the total market size, the degree of open interest in derivatives markets is relatively low compared to the degree of leverage seen in the first half of the year.
After the significant net inflow of around 140k BTC to exchanges in May, July saw around 110k BTC in net outflows, largely reversing that trend. However throughout August, exchange balances have stalled at around 2.5M BTC (~13% of circulating supply).
Fear/Greed index stubbornly stands in “Greed” territory (above 50), supporting bullish view on the market and near ATH:
Market Sentiment – major August events
PayPal Holdings Inc will allow customers in the UK to buy, sell and hold bitcoin and other cryptocurrencies starting the last week of August. With over 403 million active accounts globally, the California-based company is one of the largest mainstream financial companies to offer consumers access to cryptocurrencies.
Binance is the biggest platform in the world. Its trading volumes in July were $455 million, down almost a third from a month earlier amid cooler crypto markets but still No.1 globally, according to data from CryptoCompare.
Financial regulators across the world have targeted major cryptocurrency exchange Binance. Some have banned the platform from certain activities, while others have warned consumers that it was unlicensed to operate.
The Dutch central bank on Monday said Binance was not in compliance with the anti-money laundering and anti-terrorist financing laws. A string of other regulators – including those in Japan, Britain, Germany, Italy, Hong Kong and Malaysia – have also issued warnings against Binance in recent weeks. Binance is also reportedly under investigation by the U.S. Justice Department and Internal Revenue Service.
Major brokers show great financial reports
According to the results of the second quarter of 2021, the eToro investment platform earned more than $ 264 million in commissions from cryptocurrency trading. This is evidenced by the data published on August 25, a report for investors.
Online broker Robinhood generated $ 565 million in revenue in April-June, 8.2% higher than in January-March. The share of digital assets trading in the indicator increased from 17% ($ 88 million) to 41% ($ 233 million).
Coinbase’s total revenue for the second quarter was $ 2.2 billion, the American company said in a letter to shareholders. Revenues from transaction fees amounted to $ 1.9 billion. Earlier, FactSet analysts predicted this figure at around $ 1.57 billion, and total revenue at $ 1.78 billion. Most of the revenue came from retail traders – $ 1.8 billion, up 26% from the first quarter.
According to the recent results, the difficulty of BTC mining is increased by 13.24%, to 17.62 T. In mid-August, the difficulty of mining digital gold increased by 7.31%. At the end of July, the indicator increased for the first time in two months – after reaching a peak in May, it has consistently were declining
Riot Blockchain Reports Record Second Quarter 2021 Financial Results – Increased mining revenue by 1,540% to a record $31.5 million & produced record net income of $19.3 million for 3 month period ending 6/30. During this period, it managed to mine 675 BTC against 491 BTC in January-March.
Over the course of the last two months, hash-rate has increased by around 25% from the lows, suggesting hash-rate equivalent to around 12.5% of the affected miners have come back online. The network is currently mining at a rate of 112.5 EH/s.
As a result of this, we have seen the net balance position of miners continue to increase over the last two months. The net growth of miner balances has now hit +5k BTC/month which demonstrates a net reduction in compulsory sell-side pressure sourced from miners.
The total revenue of bitcoin miners in July is amounted to $ 972.6 million, which is 16% more than in June. The increase in revenues from block mining (from $ 797 million to $ 944.9 million) was facilitated by the bitcoin appreciation to $ 42,000 after retesting $ 30,000.
Marathon’s Monthly Bitcoin Production Increases 66% month-over-month to 442.2 BTC in July as Total Bitcoin Holdings Grow to Approximately 6,225.6 BTC
Institutional investors increase BTC direct and indirect purchasing
In SEC filings, Morgan Stanley has just reported owning a large amount of Grayscale Bitcoin across multiple portfolios. The largest of these appears to be 928,051 shares (~$27.7 Mln.) held by Morgan’s Insight Fund.
U.S. banking giant Citigroup is awaiting regulatory approval to begin trading bitcoin futures contracts on the Chicago Mercantile Exchange (CME), according to a source within the bank who asked to remain nameless.
The bank is said to be fielding a surge in client demand for cryptocurrency exposure as bitcoin again mounts a climb toward $50,000. Citi, which is still working through the necessary regulatory approvals, would join fellow megabank Goldman Sachs in offering bitcoin futures trading.
MicroStrategy has purchased an additional 3,907 bitcoins for ~$177 million in cash at an average price of ~$45,294 per coin. As of 8/23/21 it holds ~108,992 bitcoins acquired for ~$2.918 billion at an average price of ~$26,769 per bitcoin.
We recently received board approval to purchase over $500M of crypto on our balance sheet to add to our existing holdings. And we’ll be investing 10% of all profit going forward in crypto. I expect this percentage to keep growing over time as the cryptoeconomy matures.
According to Form 13F dated June 30, 2021, BlackRock acquired 6.71% of Marathon Digital Holdings (~ $ 207 million) and 6.61% of Riot Blockchain (~ $ 175 million). The total value of her positions was $ 382.96 million.
Fidelity Investments Inc. purchased a 7.4% stake worth ~$20 million in Marathon Digital Holdings, one of the largest bitcoin mining operations in North America, across four index funds.
Clear Perspective Advisors, a wealth management firm in Aurora, Illinois, reported owning 7,790 shares of Grayscale Bitcoin as of June 30.
BTC institutional watch: Ancora Advisors, based in Cleveland, reported 13,945 shares of Grayscale BTC as of June 30. Tiny position for a big firm, but Ancora is a smart long-term shop. Worth watching in coming quarters.
BTC institutional watch: Boston Private Wealth reported owning 103,469 shares of Grayscale Bitcoin as of June 30. Previously, it reported 88,189 shares as of end-March. Boston Private is part of SVB Financial Group
BTC institutional watch: Parkwood, a Cleveland-based private investment firm, reported owning 125,000 shares of Grayscale Bitcoin as of June 30. Previously, it reported 93,000 shares as of end-March
JPMorgan Chase began pitching an in-house bitcoin fund to its Private Bank clients for the first time this week, completing its transformation from the “never-bitcoin” mega-bank to a participant in the digital assets market.
The passively managed fund doesn’t have any investments from clients yet, according to two people familiar with the matter. That could soon change because advisers were primed about the fund only on August 4, in a call with the bank. JPMorgan declined to comment. The fund is being offered in partnership with NYDIG, which is the bitcoin arm of asset-management firm Stone Ridge.
This time we do not need to explain many things. The situation stands quite evident even with the common sense approach. We see positive shifts in all aspects of the market – miners are mining, investors are investing. Overall sentiment on the market looks positive. Statistics also show improvement – so nothing negative to stick with, except maybe regulation. But this is the kind of issue out of our control and one of the significant risk factors that we could assure from recent May events and China demarche.
The major difference that we foresee and expect is the change in the progress vector of the market. If before May events, cryptocurrencies mainly were developing “in depth” with massive purchasing from prominent investors, now we expect that “in width” developing is coming, when intermediaries start providing services to the population, increasing the popularity and make cryptocurrencies really massive. This, in turn, should significantly increase demand for the coins (not only BTC) and make them less sensitive to the money of big investors. Now progress should turn on the way of “public services” rather than “investing object.” Cryptocurrencies should become a tool of public services and migrate from “market tool,” investments’ object into public service tool.
This should make bitcoin more stable, reduce volatility and decrease the speculative component in its pricing. And this, in turn, becomes an intermediate stage of coming institutional investors again later, as they want to see less volatility. Overall, the perspective looks positive, and we do not see reasons why our upside targets couldn’t be met.