The highest return so far this year
Bitcoin has risen over 30% since the New Year. In four weeks, the ‘digital gold’ has generated a higher return than the S & P500 did last year, and it was the best year for the broad stock index since 2013.
In May, the number of new bitcoin produced will be halved. The so-called ‘halving of mining rewards’ will lead to less inflation of new bitcoins. Many speculate that demand will remain the same. The result will be a sharp shift in the supply and demand curve, as the market experienced in 2016 with a subsequent price rally.
Technical Analysis
The technical indicators finally light up green. Bitcoin now trades above the 200-day moving average and has established itself above large resistance levels of $8,800 and $9,200. In addition, a ‘green candle’ has been added to the monthly chart. It’s been six months since the last time. The fun of technical analysis is the indicators are a 100% global language. The graph looks similar in China and Kautokeino. The moving average is mathematically derived from historical data. This means that purchase signals hit all screens around the world at the same time.
The institutions are coming
Towards the end of last year, the Intercontinental Exchange (ICE), which owns the New York Stock Exchange and a number of other exchanges, launched its crypto venture Bakkt. They are aimed at institutional clients who have a relationship with the stock exchange group from before. They also offer a storage solution and physical delivery of bitcoin. Together with CME, the Chicago Mercantile Exchange, they offer an opportunity for large funds and financial players to buy bitcoin in a fraction of a second with their existing trading set-up. The power of this may prove to be the case if the bitcoin price takes out previous peaks and draws in new players who want to join the upswing. The volume of these two exchanges has increased month by month.
The same players have also launched option markets, but they are not the only ones. Bitmex and Deribit derivatives set new trading records as they offer a range of exotic trading products and high leverage. Now, borrowing is not in itself positive, it can push the market higher up during periods of upturn but also push the price extra much under corrections, but the point is increased maturity and spread. The offer in the crypto market today is starting to resemble what you find in the financial market for stocks and interest rates.
Clear regulations provide increased adoption
Although private investors may have been lukewarm to Bitcoin since its peak in 2018, interest has certainly not died out with central banks and government agencies. Several countries have clarified regulations and classifications so that the market can now trade and use bitcoin as required by law. It forms the basis for increased adoption. In addition, bitcoin and cryptocurrency were the topic of discussion at the annual Davos conference and press conferences of the new ECB chief Christine Lagarde.
The big driver, however, may be the central banks that will now launch their own digital currencies. The Central Bank of Japan has been at the forefront of the development of such a digital edition of Yen, and has for this reason done a good analysis work. The problem they are now addressing is what happens if the digital edition becomes popular far beyond the borders of the country, and therefore helps to increase the value of the currency measured against the dollar and the euro. The digital edition will deal with couples with fiat yen.
A safe haven
Finally, it may be useful to look at Bitcoin as a “safe haven”. During the Iran crisis, the price rose while the stock exchanges fell. The same thing happened during the Coronavirus. Many have pointed to bitcoin as an uncorrelated asset with, for example, equities. This means that bitcoin can become a “digital gold”, or something that stands safe during crises and unforeseen events.