Behind the Surge of BTC, Is the Bull Market Coming?

10/29/2023·1years ago

The price of Bitcoin has reached its highest point in 17 months, the highest level since May 2022. This surge has caught many people off guard, and with the steady rise of this 'king of cryptocurrencies', it has brought a bullish atmosphere to the crypto market. So what are the reasons driving the surge? What about the future development of BTC?

Previously, the veDAO Research Institute mentioned in an article that although fake news caused a roller-coaster ride in BTC prices, the market sentiment is positive, and the future trend will be positive. In this article, the veDAO Research Institute will bring the recent reasons for the surge in BTC and an analysis of the future trend.

Reasons for the Rise in BTC Prices

Considering that the crypto market is easily affected by volatility, a single factor cannot be seen as the sole reason for the surge. In the past few days, BlackRock's BTC spot ETF appeared on the DTCC website, was briefly removed, and then re-added, which is also considered one of the reasons for this surge. In addition, there are some other more influential factors:

BTC Halving Approaching

There is less than 6 months until the BTC halving. The cryptocurrency community expects this event to kick off the next bull market cycle. According to analysts like Michaël van de Poppe, now (6 to 10 months before the BTC halving) is the best time to invest in altcoins, and venture capitalists are eager to start receiving funding.

While investors are counting the days for their investments to appreciate, BTC miners are concerned about this event. Miners' concerns stem from the fact that this event will lead to a halving of mining rewards, from 6.25 BTC per block to 3.125 BTC. However, for investors, the halving event is valuable because it reduces the growth of newly mined BTC. As time goes on, the operating costs of miners are also increasing. Specifically, mining infrastructure is becoming more complex and expensive. Others complain about rising electricity costs, and US miners may face a 30% tax, causing more anxiety. This is because BTC hash power (the computing power required for computer or hardware operations when solving different hash algorithms) is mainly concentrated in the United States.

US Banking Crisis and BTC

The US banking crisis in March of this year has become a boon for BTC and the crypto market. One of the most important reasons is the lack of correlation between cryptocurrencies and the US stock market. Although the banking system has since stabilized, the current market conditions once again suggest a similar scenario is forming.

US Banks Under Pressure Again

The four major banks on Wall Street—Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS), and Bank of America (BAC)—are currently at their lowest levels since the banking crisis. Their performance from the beginning of the year to the present shows that their stock prices are at their lowest, even lower than in March of this year. Citigroup's stock has fallen by 14% since the beginning of the year, and Goldman's decline is also close to 13%. Morgan Stanley's losses exceed both, having fallen by 16% since the beginning of the year, while Bank of America leads with a 23% decline.

Cryptocurrencies and US Banks Show Negative Correlation

Although the current state of the US economy does not support a bullish narrative for banks or the stock market, the situation in the crypto market is quite different. Currently, BTC shows a clear negative correlation with the S&P 500 and Nasdaq indices, at -0.8 and -0.78, respectively.

In March, as banks faced immense pressure, BTC prices rose along with other cryptocurrencies, and coincidentally, BTC is now also rising. This has led to a rise in other alternative coins, pushing the total market value of the entire crypto market to $1.244 trillion.

From this perspective, the losses of US banking institutions are being transformed into profits for cryptocurrency investors, indicating that capital flows into this area are not only influenced by the US. However, the continued losses of banking institutions may not be the only reason for the rise in BTC.

Behind the Israel-Palestine Conflict, US Treasury Bonds and BTC

Arthur Hayes, co-founder of BitMEX, recently stated that the current economy is being affected by a "global war", which has catalyzed the recent selling of US Treasury bonds. As bonds are no longer safe, investors are choosing BTC and gold as alternative investment assets.

Since mid-2022, the yield spread between 2-year and 30-year US Treasury bonds has turned positive for the first time.

Arthur Hayes explained the impact of the tense situation in the Middle East on the financial markets, pointing out that with the US government continuing military aid to Israel, this will lead to the selling of US Treasury bonds. He explained, "If you are a long-term holder of US Treasury bonds, the most worrying thing is that the US government does not think it spends too much. If the US defense spending enters a ridiculous mode, it will borrow tens of trillions of dollars to support the war machine, which will require the government to sell more long-term bonds to investors to absorb funds, and global distrust of US Treasury bonds will further increase. This is why bonds are being sold, and yields are rising."

With the "Israel-Palestine conflict" and the "Federal Reserve (FED) pausing rate hikes" pushing US Treasury bond yields to a 16-year high, Arthur Hayes believes that when long-term US Treasury bonds no longer provide security to investors, they will seek alternative assets, and the preferred assets in this background are gold and BTC. Arthur Hayes believes that the rise in BTC and gold is due to the sharp decline in long-term US Treasury bonds, not speculation about whether ETFs will be approved, but a reaction of BTC to future US dollar devaluation and high inflation caused by war. Arthur Hayes also mentioned another reason for the sharp drop in bonds, when the Fed's rate hike cycle comes to an end and the US economy remains normal, investors no longer have the motivation to hold long-term, which will also lead to the selling of US Treasury bonds.

Other Factors That May Cause the Rise in BTC Prices

A group of key investors may also be one of the reasons for this surge. Since September 21, whale addresses holding 100 to 1000 BTC have been accumulating BTC. In a month, the BTC holdings of this group have increased by 50,000 BTC, worth $1.7 billion, increasing their holdings from 3.85 million BTC to 3.9 million BTC.

At the time of writing this article, the BTC price is $34,572, and it may continue to rise due to the strong market momentum. It remains at the mid-to-high level of the market, and the chart above shows an evaluation from the low point in early 2023 to the high point this year of $35,184.

The price of BTC has doubled from the closing price of $16,542 on December 31, breaking through the key retracement level of 61.8% Fibonacci at $28,067 during the rise. The strong momentum of this rebound also broke through the 78.6% Fibonacci level to $31,197.

The pressure from the increasing buying volume may continue to drive the BTC price higher, with a bullish target of $35,000. In this case, the most reasonable target would be the Fibonacci chart's top level of $35,184.

However, if profit-taking sales begin, the BTC price may still experience a downward trend. In this case, the support level for BTC may be around $31,197, or more likely around $28,067. In the most severe case, the price may drop to the level of $25,869.

With the continuous rise in BTC prices, market sentiment is clearly high. It can be said that multiple factors such as the approaching BTC halving, pressure on the US banking industry, and the rise in US Treasury bond yields have driven this round of price increases. Although there may still be fluctuations in the short term, from a medium to long-term perspective, the BTC price is in an upward trend. For investors, now is still a good opportunity to position themselves in BTC. With the gradual release of the halving effect, BTC may open a new bull market cycle, which is worth looking forward to.

Reference document: https://cryptohayes.substack.com/p/the-periphery

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