USD weakness combines with Bitcoin’s supply-demand ratio, while the BTC/USD pair approaches $19,000.
Bitcoin (BTC) starts another week near historical highs while the US dollar continues to fall. What will cryptocurrency’s next moves be?
While investors are looking for safe haven assets and Bitcoin already shows a squeeze on the offer, Cointelegraph examines the factors that could affect prices during the week.
DXY returns to family minimums
Reports from the United States that mass vaccination against the Coronavirus could begin within a month have pushed investors into panic over the cover assets.
With several candidates now available among the potential vaccines, the scenario seems to be tending towards the beginning of a global recovery. This means that the dollar will become less attractive than other destinations.
„The vaccine news favours the assumption of a global economic recovery sooner rather than later, and along the way the USD will lose its appeal as a safe haven,“ explained Rodrigo Catril, currency strategist at National Australia Bank, in a comment to Bloomberg.
„This is a positive scenario for risk assets and negative for the USD, especially with the Fed set to remain ultra-comfortable for some time.
The US dollar (DXY) index, which tracks the USD against a basket of twenty national currencies of trading partners, has fallen to low levels twice since August, with total monthly losses of 2.2%.
As often reported by Cointelegraph, DXY tends to show an inverse correlation with Bitcoin, so prolonged weakness is associated with stronger performance for BTC/USD.
Prospects for the dollar remain uncertain due in part to the risk of new White House sanctions on Chinese technology companies, which will be announced later this week.
The squeeze on the offer is the „most important story in Bitcoin“.
Returning to Bitcoin, the emerging discussion continues that buyers are asking for more coins than they can produce.
As mentioned above, this is mainly due to corporate entities, especially Grayscale, Square’s Cash App and PayPal, whose needs are increasing over time as more and more customers decide to buy BTC.
The result is that block subsidies from miners are going fast and the only way for buyers to fill this gap is to pay higher prices per currency.
„PayPal and Cash Apps are already buying more than 100% of all new Bitcoins,“ the investment company Pantera Capital summarized in a blog post on November 21.
„How does Cash App get the coins it needs? That’s where the limited offer comes in, the inelasticity: it buys them at a higher price. At the moment this is THE story in Bitcoin.“
Pantera presented a graph showing the volume of ItBit, the exchange operated by Paxos, the payment manager that takes care of the new function of PayPal for the purchase of cryptocurrency. It seems that PayPal alone is buying 70% of Bitcoin’s new offer.
The new status quo is clearly different from the last time Bitcoin reached levels close to $20,000. As various factors suggest, this time those who are buying do so by definition in a long-term perspective.
„With BTC at $18,500, Google searches for the term ‚Bitcoin‘ have not increased. This is not an increase FOMO. It is composed of steady hands. Few understand it,“ tweeted Gemini exchange co-founder Cameron Winklevoss on Monday.
Last week, comments from a traditional market strategist highlighted the apparent lack of interest in Bitcoin from mainstream consumers. This, he explained to Bloomberg, sold out in 2017.
Fundamentals prepare for a strong recovery
After last week’s 4.82% increase, it seems that the Bitcoin network’s difficulty is set to grow further.
The difficulty and its automatic adjustments, programmed at a distance of 2016 blocks from each other, are an essential function of Bitcoin that allows the cryptocurrency to maintain block mining at constant intervals without external intervention, thus ensuring the stability of the network.
At the beginning of November, the difficulty traced the biggest drop in the last nine years in a single adjustment. This development created a more accessible playground for miners, with the expectation that more activity would lead to the difficulty increasing again due to the resulting competition.
As a result, by the end of this week the difficulty should see an estimated recovery of 7.7%, almost completely offsetting the impact of the previous drop and paving the way for new historical highs.
Similarly, Bitcoin’s average hash rate, i.e. the estimated computing power dedicated to transaction validation, reached 137 exahash per second (EH/s), recovering 30% from the collapse of the difficulty.
Currently, the historical high of the seven-day average hash rate is 146 EH/s, reached in mid-October.
PlanB: the big rises are still to come
Widening the view, even slightly, is still a reason for great optimism among some of Bitcoin’s best-known analysts.
For PlanB, the creator of the stock-to-flow forecasting model series, Bitcoin’s real upturn hasn’t yet arrived, despite monthly gains of already 43%.
This observation follows the historical behaviour following the block subsidy halving events. In 2012 and 2016 the first increases occurred a few months after halving, but the big rises only came the following year, more like a tsunami than a slow rising tide.
„The current #Bitcoin price action is nice, but we are waiting for a real jump (as in the red arrows in early 2013 and 2017),“ he tweeted sharing the chart below.
„In my opinion, that will be the beginning of the real bull market and phase5. January 2021?“
As reported by Cointelegraph, PlanB is certainly not the only one considering next year as the period when Bitcoin will see its best days.
Fear & Greed index is cooling slowly
Last week, the worrying values provided by the Crypto Trader Fear & Greed Index presented arguments against further gains for Bitcoin.
Using a combination of factors to measure sentiment among investors, the index almost reached its 2019 highs, culminating in a sharp fall.
On Monday, however, the „Extreme Greed“ rating of the market sentiment parameter is beginning to fall slowly from 94/100 to 90/100.
„Extreme Greed“ refers to the determination of rapidly deteriorating investors as the price rises, signaling the increasing likelihood of a sell-off.