- Stronger fundamentals, growing institutional interest and mainstream adoption of cryptocurrencies bode well for the prospects of bitcoin
- The asset can also work as a hedge against macroeconomic risks
Bitcoin Gearing Up For Bull Run?
At the time of writing, bitcoin is hovering above the US$10,000 mark. The last time we saw bitcoin reach this price was in December 2017, after which, the cryptocurrency went on to reach its all-time high of nearly US$20,000 in a matter of days.
The cryptocurrency market remained bearish for all of 2018, but with the way bitcoin is charging upwards and setting new highs in 2019, it is safe to say that the crypto-winter is behind us already. In the past several years, we have witnessed a cyclical pattern emerging in the cryptocurrency space.
And with each cycle, we reached exponentially greater heights.This time around, analysts have come up with bolder price predictions, ranging from US$21,000 all the way up to US$100,000, all of which begs the question: is the current bull market any different from the last one?
Bitcoin, the world’s largest cryptocurrency, surged in value to hit US$13,000 in late June. Illustration: ReutersAt the time of writing, bitcoin has just surpassed the US$13,000 mark. The last time we saw bitcoin reach this price was in December 2017, after which, the cryptocurrency went on to reach its all-time high of nearly US$20,000 in a matter of days.
2018: Year of the Bears
The cryptocurrency market remained bearish for all of 2018, but with the way bitcoin is charging upwards and setting new highs in 2019, it is safe to say that the crypto-winter is behind us already. In the past several years, we have witnessed a cyclical pattern emerging in the cryptocurrency space. And with each cycle, we reached exponentially greater heights.This time around, analysts have come up with bolder price predictions, ranging from US$21,000 all the way up to US$100,000, all of which begs the question: is the current bull market any different from the last one?
inRead invented by TeadsDuring the peak of the 2017 cryptocurrency bull run, several sceptics compared it to the Tulip mania of the 17th century, with most convinced that bitcoin was a bubble. However, since 2017, bitcoin and other cryptocurrencies have come a long way in terms of maturity. Bitcoin fundamentals are stronger than ever, institutional interest is at an all-time high and mainstream adoption is on the rise, strengthening the argument for why the market is not based totally on hype this time.
Earlier this month, Blockchain.info reported that bitcoin’s hash-rate – the speed at which a bitcoin mining machine operates – reached a historical high of 74,548,543 terahashes per second. In simpler terms, the bitcoin blockchain is more secure than it ever has been and breaching the network would require unimaginable computing power. In addition, the average number of transactions on the blockchain has consistently risen. As reported by localbitcoins.org, the weekly average transaction volume has remained above US$50 million since September 2017.
Daily active bitcoin wallets crossed the 1 million mark in June this year, according to data published by Coin Metrics, providing another indication that more people are now using bitcoin.
Institutional Investors are Coming
Institutional involvement in the cryptocurrency space, over the past year, has been incredible. It is easy to argue that the 2017 bull-run was largely fuelled by retail investors. This time around, institutional investment in cryptocurrencies has gained traction.
Fidelity is set to launch cryptocurrency trading for institutional investors, seeing huge demand in that niche. Earlier this month, CME Group recorded open interest – the number of active contracts held by investors – in 5,311 contracts, totalling 26,555 bitcoin, significantly higher than the 2017 price peak.
Furthermore, JP Morgan, one of the biggest investment banks in the world, launched its own token, JPM coin, to settle payments between institutional clients. The biggest social network in the world, Facebook, is set to launch its own cryptocurrency, Libra, next year. Regardless of the use cases of these institutional cryptocurrencies, they are a step in the right direction, giving more legitimacy to the industry.
Is Bitcoin Digital Gold?
To most, the thought of bitcoin as a safe haven may sound completely absurd given its volatility. However, a recent study from Grayscale Research analyses the correlation between bitcoin and macroeconomic developments, illustrating the use of bitcoin as a hedge against political unrest and macroeconomic uncertainty.
Even though bitcoin does not really feature in the conventional list of safe havens, more people are relying on the cryptocurrency as a hedge against movements in the “traditional” financial market. Correlation does not necessarily mean causation but the key takeaway here is that bitcoin and other cryptocurrencies are becoming more popular among investors for diversifying their portfolios.
To stimulate their economies, central banks around the world are turning dovish: cutting interest rates and printing more money. While this has made investors rejoice in the short term, bitcoin holders are confident that in the long term, bitcoin will outperform fiat currencies, the supply of which is growing at a rapid pace.
The cryptocurrency market is definitely more mature than it was during the last bull run and there is more intelligent money in the market than there was the last time. Fear of missing out will still definitely be a huge catalyst in driving up prices but we cannot ignore the other developments that have added legitimacy and increased the ways in which cryptocurrencies could be used, paving the way for mainstream adoption.
How prices will move remains of interest. Past performance is not an indication of future results, but if the observed pattern were to continue, we could be looking a year-end price well above the US$20,000 mark.
Bitcoin Volatility Lowest Levels Since May
- Bitcoin’s price volatility, as represented by Bollinger bandwidth, has hit the lowest level since May 3, and is closing on a level seen ahead of violent price swings in the past.
- While technical charts are increasingly favoring a downside move, bitcoin’s non-price metrics continue to call a bullish move, which, so far, has remained elusive.
- BTC risks falling to $9,855 (Sept. 11 low) in the next couple of days and could extend the decline toward $9,320 (Aug. 29 low).
- The bearish case would weaken above Sept. 13’s high of $10,458. The outlook, as per the daily chart would turn bullish above $10,956 (Aug. 20 high).
Bitcoin’s volatility has hit its lowest level in over four months – a price squeeze that may force a significant move either way.
BTC’s bull run stalled at highs above $13,800 on June 26 and prices have created lower highs and higher lows ever since.
Notably, the trading range has narrowed sharply over the last two weeks, with bitcoin consolidating between $9,850 and 10,950, as per Bitstamp data.
As a result, the Bollinger bands – volatility indicators placed 2 standard deviations above and below the price’s 20-day moving average – have narrowed sharply.
More importantly, Bollinger bandwidth, an indicator used to gauge market volatility, has dropped to 0.11 – the lowest reading since May. 3, as seen in the chart below.
The volatility level has dropped steadily from 0.62 to lows near 0.10 in the 2.5-months.
In the past, BTC has witnessed big moves following drops to or below 0.10 (marked by arrows).
For instance, the bandwidth dropped to 0.06 a week before BTC broke into a bull market with a high-volume move to $5,000 on April 2. It also fell to 0.10 on May 2 – a day before BTC jumped above $5,600, marking an upside break of a three-week-long consolidation. And, in the days leading up to last November’s sell-off below $6,000, volatility dropped to 0.05.
If history is a guide, then BTC could soon witness a big move on either side. Technical analysis theory also states than an extended period of low volatility is often followed by a big move.
While the record high hash rate (miner confidence) is calling a bullish move, the technical charts are beginning to favor the bears.
As of writing, BTC is changing hands at $10,170 on Bitstamp, representing little change on a 24-hour basis.
Bitcoin jumped 2.6 percent on Sept. 12, confirming an upside break of a falling wedge pattern. The bullish breakout, however, failed to draw bids and the cryptocurrency has ended up creating another lower high at $10,458 (Sept. 13 high).
With the failed breakout, the bearish view put forward by Sept. 6’s big red engulfing candle has gained credence.
BTC risks falling back to the Sept. 11 low of $9,855 in the short-term. A violation there would open the doors for $9,320 (Aug. 29 low).
A few observers are calling for a deeper drop to levels below $8,000. That possibility cannot be ruled out as the cryptocurrency is looking heavy on the longer duration charts.
Monthly and weekly charts
The back-to-back inside bar candlestick patterns on the monthly chart (above left) indicate buyer exhaustion following a stellar rally from $4,000 to $13,880.
A bearish “inside bar” reversal would be confirmed if prices close (UTC) below $9,049 – the low of the first inside bar created in July – on Sept. 30.
Further, a negative reading on the weekly moving average convergence divergence (MACD) indicates scope for a deeper pullback.
The bearish case would weaken if prices rise above $10,956 (Aug. 20 high), invalidating the lower highs setup on the daily chart.
That said, a weekly close (Sunday, UTC) above $12,000 is needed for bull revival, as discussed last month.
DMScript Announces Partnership with OVH for Their Optimized Servers
The United Kingdom-based blockchain gaming company DMScript announced on Sunday that it has partnered with renowned cloud computing solutions provider OVHcloud, to utilize their optimized servers. In the official blog on Medium, the company said they would use OVHcloud services for Higglo, a new gaming platform expected to launch soon.
— DMScript (@DMScript) September 27, 2020
As part of the strategic partnership, OVH will also provide cloud computing and server maintenance for DMPlay in sync with nVidia’s technology to provide a seamless and efficient user experience. On the other hand, Higglo will use OVH services to avoid lags, crash downs, and overload delays due to high traffic. DMScript has been inactive in the community for a long time, which it admitted in the official announcement, and said that the team was busy building the Higglo platform that is due for launch soon along with DMPlay.
Blockchain-based gaming is one of the fastest-growing segments in the crypto-blockchain industry, along with DeFi and gambling. The growing demand leads to higher & faster computing, quick processing cloud data, and 24/7 maintenance.
Partnering with established names like OVH and nVIDIA gives DMScript a great technological advantage and will allow the company to focus on its core strength, and that’s building blockchain-based online games. Such partnerships, like the one with OVH, will help DMScript to employ more capital. Intellectual resources are building unique and wholesome experiences for the gamers, while OVH takes the responsibility to ensure the smooth functioning of the servers.
Research: Cryptocurrencies Are The Leading Point of Entry for Retail Investors In Emerging Countries
The popular digital asset exchange Huobi Group has compiled a study exploring the investment profiles of cryptocurrency traders in emerging markets. It concluded that digital assets such as Bitcoin and Ethereum have become “the first point of entry to financial management for many individuals.”
The majority of the survey’s participants came from Europe, Asia, Africa, and South America. The study concluded that most of them are relatively new to investing.
78% answered that their investment experience is less than a year, while only 17% said they had been actively trading or investing for five or more years.
“considering 73% of respondents were of prime working age (26-50 years old), age was not a major contributor to the low levels of prior investing experience.” According to the report.
Furthermore, most participants reaffirmed that cryptocurrencies are their preferable investment instruments with a sizeable difference compared to other markets. Equity trading is next with 30%, while other traditional products such as bonds, real estate, investment funds, and forex received less than a quarter of the answers.
Longer-Term Holders Stick With Bitcoin And Ethereum
The research revealed that most investors maintain short-term views on cryptocurrencies. 55% indicated that their horizon is less than a year. Only 13% aim for a more extended period (more than four years).
However, when it comes down to specific digital assets, the situation was somewhat different. Bitcoin and Ethereum investors appeared “much more likely to hold” their coins for at least three years.
Interestingly, while most retail investors had answered that their annual income is relatively modest, their investment allocations in cryptocurrencies seemed quite significant.
“A majority (54%) report having an annual income of $10,000 or lower, and very few (13%) earn more than $50,000 per annum. Nearly half (49%) of the respondents plan to invest between 10 – 30% of their annual income in digital assets, and almost 25% plans to allocate more than 30% of their income in crypto.”
Vice President of Global Business at Huobi Group, Ciara Sun, commented that these findings:
“aren’t surprising. They do solidify our belief that digital assets will continue playing a significant role in the future borderless economy and help drive global financial inclusion. As crypto becomes more accessible, it will become a gateway to other financial products and services, helping set a path to financial wellbeing.”
Optimism For Ethereum as Layer 2 Testnet Gets Launched: What Does It Mean?
Layer 2 scaling developers at the Plasma Group have recently announced the launch of their Optimistic Ethereum testnet, which will be deployed on projects to test much needed scaling solutions.
Essentially, Layer 2 scaling involves taking work off the root chain to process data and transactions faster. The team has built a system called OVM, a fully-featured Ethereum Virtual Machine (EVM) compliant execution environment designed for L2 systems.
The OVM was first tested on Uniswap’s Unipig L2 decentralized exchange launched as a demo in late 2019.
At long last – light at the end of the tunnel. Welcome to the first phase of the Optimistic Ethereum Testnet ⛅️. https://t.co/cjfhB0WU98
— Optimism (@optimismPBC) September 25, 2020
Synthetix The First Guinea Pig
The Optimistic Ethereum testnet will be rolled out in several phases bringing early adopters on gradually so that the team can individually support each project.
On-chain synthetic assets DeFi protocol Synthetix will be the first to trial the scaling solutions offering 200,000 SNX in rewards to their users for participating. The team added that the testnet is currently open for public use, but not yet for public contract deployment as there will be bugs that need ironing out first.
Phase A of the testing will involve airdropped tokens that will allow participants to mint and burn sUSD, the Synthetix native stablecoin, and claim staking rewards. This will be done using the Görli Ethereum testnet.
Phase B will enable deposits and include an airdrop of Layer 1 Görli SNX tokens to participants who can increase their stakes if they perform a deposit. Phase C will allow withdrawals, and participants must complete a successful withdrawal to receive their testnet rewards on the mainnet.
Optimistic Ethereum is the only generalized L2 solution for Ethereum, which means that it does not require specific functionality to be built to support existing L1 protocols.
Synthetix posted a guide for users wanting to take part in the tests, stating;
“This is a huge milestone for Synthetix, Optimistic Ethereum, and indeed the entire Ethereum space.”
— Synthetix ⚔️ (@synthetix_io) September 25, 2020
Ethereum Fees Update
A week after the digital dust has settled from the Uniswap airdrop and UNI launch, gas fees have fallen back a little. From a high of almost $12 on September 17, the average transaction fee has fallen back to around $2.75, according to Bitinfocharts.
This is still way too high, though, and it is hoped that many more Layer 2 solutions will be deployed to DeFi protocols over the coming months so that they can remain on Ethereum. The ETH 2.0 scaling upgrade is still at least a year away, so efforts such as Optimistic Ethereum could become its savior until then.
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