Bitcoin’s positive momentum continues
After a sharp fall in March, Bitcoin has recovered and gone on to post 16-month highs. Indicators suggest that positive momentum can continue.
Back in May 2019, Bitcoin went on an impressive price surge, increasing from around USD $4,000 to USD $14,000. However, the bullish momentum could not be sustained and the price fell back subsequently. The market began to pick up again at the start of 2020 as investors looked to May’s Bitcoin Halving event as a potential catalyst for a new bull market. However, as the COVID-19 pandemic spread, global markets crashed in March. The BTC price dropped again, back to around USD 4,000.
Five months later and the crypto markets have not only recovered, but they are now showing signs of pushing on to higher prices still. Looking at the current market conditions, there are several key differences from May 2019 which help the case for the bulls.
The first difference is the hash rate difficulty. Bitcoin’s hash rate is marking a record high at 120ETH/s. What’s more, Bitcoin has entered a cycle where price and hash rate are increasing simultaneously. Network hash rate and difficulty have been just as volatile as price over the past few months but both are once again near all-time highs. The third block reward halving occurred earlier this year, which will likely continue to squeeze out only the most efficient miners. Thus far, five new ASICs have been released this year, which may help keep the hash rate elevated for many months to come.
The next difference is the Bitcoin dominance metric. Last year, it increased from a bottom of 55% in the spring, to over 70% in August. The increase in BTC dominance suggests growing investor confidence in Bitcoin as the leading digital currency. In 2020, BTC dominance is dropping again and is now down to 60%. The drop in dominance is not due to investors losing confidence in BTC, but rather, they are seeking to gain higher returns in other assets such as ETH, altcoins, and DeFi tokens. ETH and DeFi tokens have outperformed BTC in 2020 and have led to new investors coming into the market.
With the gold markets and global stock markets close to all-time highs, rising interest in Bitcoin could see further BTC gains in the closing months of 2020. Square reported this week that it had achieved $875 million of Bitcoin revenue during Q2 2020. That’s a three-fold increase over Q1 2020, and represents an increase of 25x over Q1 2018 when Bitcoin buying was first introduced on the Cash App.
The current market seems stable and could hold out into the mid to long term. BNC analyst Josh Olszewicz explained that, “Correlations with volatility in legacy financial markets have had a significant impact on Bitcoin price. Since October 2014, spikes in the Chicago Board Options Exchange’s CBOE Volatility Index (VIX) have represented local lows in BTC price. Over the past month, the VIX, or the ‘fear index’, has fallen below 30, from a high of 86, the highest level since the 2008 financial crisis when the metric peaked at 90. The U.S. S&P 500 and Nasdaq indices have had a 20% and 0% rolling 30-day correlation with BTC over the past week, respectively. These correlations are down significantly from January and March when both neared a 100% correlation with BTC price.”
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