Bitcoin has yet to close its first day’s trading of the new week and has already set a record — what else can happen in the coming days?
These are the market forces at play that could make or break the price of Bitcoin this week.
Just as we reported on Friday, several factors remain dominant for BTC/USD: traditional macro markets, investor sentiment over coronavirus, and associated risk appetite.
How might Bitcoin might react to those things and more as bulls and bears tussle for control at $9,300? Read on.
Bitcoin correlation in focus as stocks keep going higher
One major theme continues to dominate the debate around Bitcoin price behavior. On Monday, stock markets were trending up, and BTC/USD, long correlated with certain indices in particular, moved in step.
After a quiet weekend, during which it moved from around $9,170 to highs of $9,300, Bitcoin reacted warmly to modest growth in futures and as markets opened.
The trend is already well defined: if stocks move up or down sharply, Bitcoin follows. This has become especially apparent since the black swan event in mid-March, when all markets crashed and then proceeded to recover at different rates.
Last week formed a classic example of the correlation process at work — price action involved a corridor between $9,000 and $9,500, with Bitcoin rising and falling by several hundred dollars at a time within that range according to macro movements.
As such, BTC went full circle through the week, with this Monday nonetheless setting a more bullish tone than the last — at least for now.
On the surface, stocks appear strong, with China about to retake the all-time highs of $10 trillion last seen in 2015. In the U.S., stocks inching up provides more of a contrast to other indicators of economic strength.
As Bloomberg reported, a basket of consumer indices are signalling concerns over the spread of coronavirus on the ground. May and June saw confidence return, while July is witnessing the opposite effect as infections once again hit record levels, not just domestically but worldwide, according to figures from the World Health Organization (WHO).
Quoted by the news outlet, analysts at Wall Street research and brokerage firm Sanford C. Bernstein added that the overall sentiment suggested that the Federal Reserve had not intervened in the market enough to buoy its trajectory.
“There is an emerging possibility that the Fed hasn’t gone far enough,” they wrote in a note to clients.
The comments continued by highlighting what has become a strange contradiction since March — the Fed appears to be supporting markets at any cost, even if that means that their “value” is less important and gives only an illusion of competition.
“If (another intervention) came to pass, then maybe valuation of the market simply doesn’t matter,” they added.
That topic is a major source of grievance among Bitcoin supporters, notably RT host Max Keiser, who has slammed the Fed’s approach on multiple occasions in mainstream media.
Regardless, Bitcoin looks set to continue to be impacted significantly by stock movements, however unpredictable those movements may be.
Bitcoin difficulty hits all-time highs
A stark contrast to the fickle nature of short-term price action comes in the form of solid Bitcoin network fundamentals.
In particular, two core measures are more bullish than ever this week. Difficulty, which saw its latest adjustment on Monday, is now at its highest in history.
As Modern Consensus reported, difficulty represents an estimate of how much work is required to solve the equations that allow miners to validate the blockchain and release the 6.25 BTC block subsidy in each block.
At 17,345,948,872,516, that measure is bigger than ever after adding 9.8%. Big adjustments are an automatic reaction to more miner competition, itself indicating that sentiment around profitability is also healthy.
Beyond difficulty, hash rate is also lingering near all-time highs of its own. Last week, seven-day average values set a record, with a slight correction over the weekend to 124.3 quintillion hashes (EH/s) per second.
While not suggestive of price strength, hash rate health has historically forecast a copycat move for BTC/USD, albeit with a latency period — a jump in early 2019, for example, was followed in April by a three-month bull run to $13,800. Keiser is a firm believer in the connection between the two phenomena.
“#BTC’s new ATH hashrate shows confidence in $USD collapsing,” he claimed on Twitter on Monday, commenting on both Bitcoin and the state of the US economy.
“USD held up with trillions of dollars worth of sticky-tape and rubber bands. The higher the BTC hash, the more trillions the USG must ‘print.’ When USD utterly collapses, BTC gaps thousands 100’s of % points higher.”
Like 2008, investors choose gold and cash in 2020
Finally, clues about Bitcoin’s future price journey may be found by analyzing the behavior of investors themselves.
Previously, Modern Consensus noted that existing Bitcoiners are opting for a wait-and-see approach, taking advantage of Bitcoin’s status as “non-inflationary” money to save instead of trade or spend.
New data from the Bank of England meanwhile shows that appetite in 2020 is not for equities, despite their apparent “recovery.” Currently doing the rounds on social media, data highlights gold and cash as the prime assets seeing inflows this year.
That will be familiar to anyone eyeing markets twelve years ago — in 2008 and 2009, directly after the Global Financial Crisis, cash and gold also saw the highest inflows.
Bitcoin has yet to reflect that behavior with bigger overall buys. These are so far confined to whales and major players, notably Grayscale’s Bitcoin Fund and payment network Square. Should rumors of support turn out to be true, Square’s fiat-focused competitor PayPal may well witness the same trend.