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Markets Report: Bitcoin needs $11,500 daily close as wild $20M price theory hits

Central bank balance sheet correlation theoretically implies a Bitcoin price of $20 million, a “fun” quant analysis reveals

Bitcoin lingered near $11,500 on August 28 as analysts delivered fresh bullish price projections that ran as high as a giant $20 million.

Data from price tickers including CoinMarketCap showed fairly flat action for BTC/USD overnight to Friday, in the aftermath of the Federal Reserve’s inflation speech.

Modern Consensus takes a look at Bitcoin’s position after this week’s events. We also publish a Monday markets outlook, the latest edition of which can be found here.

Volatility had spiked during Fed chair Jerome Powell’s words about future policy, which includes allowing inflation to run above the 2% target temporarily. Any form of increased inflation is bad news for the U.S. dollar and good for safe havens, commentators confirmed.

Weak dollar is a gift to Bitcoin and gold

On Friday, fresh dips in the US dollar currency index (DXY) appeared to confirm the theory, with levels from earlier in August reappearing.

Last time that such levels were present coincided with Bitcoin hitting highs of $12,500 and gold cementing its interplay with $2,000.

“I know bitcoin and gold are selling off right now and may go further but with Powell today, it tells you they have no desire to raise rates and a skewed desire to print more,” Real Vision CEO Raoul Pal summarized about events on Thursday. 

“That plays to the inherent upside skew in both assets.”

The US dollar currency index daily chart shows the impact of the Fed. Source: TradingView

This “inherent” narrative played into short-term prospects among Bitcoin traders. For popular trader filbfilb, if Friday’s daily close could flip $11,500 to support, a move closer to $12,000 was possible.

In addition, the macro environment on the back of the Fed speech only served to bolster BTC.

“I remained long yesterday for a few main reasons; negative futures premium, no lower low close, sheer panic on CT and calls for 9k, no break of overall support and because the price action on gold and silver to which we have been heavily correlated practically tick for tick, reversed ahead of BTC which continued dumping,” he explained to Telegram subscribers on Friday.

Going forward, filbfilb said that he would be monitoring Bitcoin’s correlation to gold and silver, as well as the inverse correlation with DXY as significant triggers.

Gold stabilized at $1,955 after brief intense volatility following the Fed, much in the same as Bitcoin behaved.

Meanwhile, a Twitter survey from fellow trader Josh Rager saw a 56% majority of 2,350 responses opt for a short-term price target of over $11,800, rather than under $11,000.

How about a $20 million BTC price?

Other responses to the week’s events were also conspicuous. Andy Yee, a senior executive for China at Visa, even went as far as to tell Twitter followers to buy Bitcoin.

“Never in the history of mankind was so much stolen from so many by so few,” he wrote, appealing to them to “opt out” of fiat using BTC, rather than any other asset.

Back within Bitcoin circles, however, and the mood was positive enough to allow for some more parabolic theories to surface.

PlanB, creator of the stock-to-flow family of Bitcoin price models, argued that inflationary central bank balance sheets should in fact raise the largest cryptocurrency far beyond any previous estimates.

The reason, he said, was that the correlation between Bitcoin and the balance sheets was much more obvious than many acknowledged.

“…Modeling #bitcoin price with central bank balance sheets (FED+ECB). 90% R2,” he tweeted. 

“Recent (quantitative easing) fueled explosion of FED and ECB balance sheets to $7T and $6.4T, implies a BTC price of … $20M.”

$20 million outstrips even stock-to-flow’s own estimates, which currently involve an average price of $288,000 during the halving cycle which ends in 2024.

Thereafter, only weakness in the dollar will dictate price gains, with $1 million still in play as more halvings increasingly restrict the supply of new coins. 

Stock-to-flow’s plans for BTC/USD in the coming years. Source: Digitalik

“I think that after Powell’s speech yesterday they rather intend to go ‘full Zimbabwe,’” PlanB added, drawing a comparison to the economic history of the African nation which saw unprecedented annual hyperinflation of 89.7 sextillion percent in 2008.

He noted, however, that the $20 million price tag was more “fun” than a serious forecast.

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Anthony Bevan is a journalist focusing on disruptive finance and cryptocurrency, along with the changing face of the market as Bitcoin gains mainstream adoption. Journalists covering cryptocurrency for Modern Consensus May hold positions in some of the currencies they write about.

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