28.11.2021

What awaits Bitcoin, what factors can affect the price of BTC?

Over the past two weeks, bitcoin has risen in price by 30%, and the difficulty of its production has increased by 6% for the first time since May. On July 20, it cost less than $ 29,500, and is now trading at a level above $ 40,000. During the local peak on August 1, the price of BTC even reached $ 42,500.

Bitcoin even repeated its old record – 10 consecutive ascending daily candles. The last time the same indicators were in September 2012. However, Bitcoin failed to gain a foothold above $ 40,000 – for several days in a row, the price of the coin has not been able to return to its previous values.

Together with the experts, we figured out under what conditions the bitcoin price will confidently go up again and when this can happen.

Reasons for the recent rally

After breaking through the psychologically important level of $ 30,000 on July 20, the bitcoin rate turned around and slowly went up – the crypto market players bought the coin back on the fall. On the 25th, the MTC cost already $ 34,500, and on the 26th – $ 39,800. There are two reasons for such a jump.

  1. First, there are rumors that Amazon plans to start accepting Bitcoin for payment . The company posted a vacancy for a blockchain specialist, and insiders confirmed that the retail giant intends to add support for cryptocurrencies by the end of the year. Amazon denied the rumors , after which the price of BTC first dropped to $ 37,000, but then it continued to rise. At the same time, the company does not deny its interest in the crypto sector .
  2. Secondly, it is a massive close of short positions. In July, the bears did not manage to crash the bitcoin rate below $ 29,000. For investors, this was a signal that the bottom, below which the price would no longer fall, had been reached, and they switched to buying the coin. As a result, at the level of about $ 35,000, there was a massive short squeeze (massive closing of short positions) for more than $ 1 billion.

Other news feeds also fueled the bitcoin price. For example, on July 29, PayPal announced the imminent launch of its own crypto wallet .

Tatiana Maksimenko, the official representative of the Garantex cryptocurrency exchange, believes that the main factors that contributed to the rise in cryptocurrency prices at the end of July were the growing appetite of investors to maximize profits from crypto investments and fatigue from the prolonged correction due to the mining ban in China:

“We see from statistics that investors prefer to withdraw bitcoins from exchanges and store them in their own wallets. This means that they do not plan to use bitcoin for trading operations now, as the market conditions do not meet their expectations , ”says Tatiana.

The expert also noted that the news about the possible launch of Amazon’s crypto payments was only a trigger that provoked a jump in the rate, but not the very reason for the growth of BTC quotes.

“The same news in different conditions might not have“ fired ”in the same way,” she summed up.

Roman Nekrasov, co-founder of LAZM, sees the main drivers of the recent rally in positive sentiment and investor expectations:

“Investors were determined that the market should begin to recover from the blow of the mining ban in China. And these expectations have been successfully superimposed on the recent news feeds. This became a signal for the bulls about the possible arrival of new large institutional level players on the crypto market. And this is considered one of the reasons for the previous bullish cycle on the crypto market , ”said Roman Nekrasov.

The negative factors that caused the May correction remain

Bitcoin has been in a bear market since mid-May: then its price almost halved in just two weeks – from $ 59,000 to $ 34,700. In May, it seemed that there was a slight pullback in the market, which would very soon be won back. However, the fall was delayed.

By mid-June, bitcoin tried to gain a foothold above $ 40,000, but it failed, and throughout July the coin traded in the range of $ 33,000 – $ 35,000. On July 20, the price of BTC dropped below the psychologically important mark of $ 30,000, but almost immediately the coin went up. Since then, the BTC has stormed the $ 40,000 level several times, but the first cryptocurrency has not yet managed to gain a foothold above it.

To understand whether the uptrend will continue, you need to understand why bitcoin fell in price before and whether these factors continue to operate. Earlier, we looked in detail at the reasons for the crash of Bitcoin and altcoins in May and July, as well as possible reasons for the trend reversal. Let’s see if their effect persists.

Negative news background. In May, China  banned the mining of bitcoin , Tesla stopped accepting BTC for payment due to its “non-environmental friendliness”, the US Securities and Exchange Commission (SEC) announced the need to tighten regulation of the crypto market. All these factors continue to negatively affect bitcoin quotes. So, China has not relaxed the requirements for the prohibition of the work of BTC miners, none of the large companies announced any new investments in cryptocurrencies, in the US the head of the SEC Gary Gensler wants to strengthen control over the crypto market, the DeFi sector and stablecoins .

At the same time, regulatory pressure on Binance  has led to the de facto ban of the exchange in the UK and Thailand, and the authorities in the Cayman Islands, Singapore and Japan are investigating it. Such increased attention of global regulators to the largest cryptocurrency exchange has an extremely negative impact on the entire crypto sector.

The mining ban in China is almost won back. Events in May led to the fact that up to 90% of the country’s mining companies were forced to close, which turned into a record drop in mining difficulty and hashrate of the Bitcoin network. Earlier, we took a closer look at how complexity and hashrate affect the price of MTC. As a reminder, when these indicators are declining, the price of bitcoin is also prone to fall. But on July 31, for the first time since May, network complexity increased by 6%, and hashrate increased by 30% from its lowest values ​​this year.

The reason for the growth is that some of the Chinese miners are actively migrating to other countries, including Russia . Many of them are already connecting their equipment to the network, but the migration process can take months. But, even despite this, we are already seeing a steady growth in hash rates, and miners’ revenues have grown by 16% compared to the previous month. By the end of autumn or by the beginning of winter, the bitcoin hash rate will be able to recover to its spring values.

However, the increase in the complexity of mining and the network hashrate , although they have an impact on the rate, by themselves, will not be able to provoke a violent rally in bitcoin. But the elimination of uncertainty regarding the position of the Chinese authorities can give the coin an additional impetus for growth. After all, you no longer need to be afraid of the consequences of the ban on cryptocurrency mining in this country – this has already happened, and the market has survived this situation with dignity.

Panic among retail investors is being replaced by FOMO (fear of lost profits) . In May, novice investors and traders engaged in margin trading (using the borrowed funds of the exchange) sold their bitcoins en masse, and institutional investors and crypto funds held the coin and bought it back on the fall.

Retail investors are now ready to buy bitcoin again and hold it in the long run. This is evidenced by the  “index of fear and greed” , which is now 50 points out of 100 possible. This indicates a neutral market sentiment. Moreover, recently this index reached 60 points, which already signals bullish expectations – investors are afraid of missing out on profits.

The volumes of bitcoin trading on the largest exchanges are also growing . According to Glassnode, the outflow of coins from trading floors has increased – the number of bitcoins on exchanges has decreased to the level of 2018. This usually indicates that investors are choosing the HODL strategy – holding coins, not selling them. But analysts at Glassnode warn that this time it is better to be careful with the conclusions – perhaps we are only seeing the internal movements of coins, and not their accumulation by users. According to Glassnode research, the current bitcoin outflow is comparable to the inflow of coins that was observed during the May fall in BTC.

It is also important to note that bitcoin continues to be bought by institutions and large investors. For example, on August 1, the volume of over-the-counter trading (OTC) exceeded $ 130 billion. Such transactions are available only to large players.

“Large volumes of OTC transactions in the last week. High net worth individuals and institutions want your bitcoin , ”warns Dylan Leclair, co-founder of consultancy 21st Paradigm.

The downturn in the stock market gave way to an upturn, but uncertainty remained.  In May, the stock market experienced a correction, as a result of which the shares of many technology companies fell by 20-30%. Some investors perceive bitcoin as an analogue of securities of high-tech companies. Therefore, it often sags along with this market sector.

Now the quotes of many shares of tech companies have not only recovered, but also surpassed the May indicators. But you need to understand that this market can start to decline at any time, because high inflation continues to persist in the United States – investors are afraid that this will force the US Federal Reserve System to increase interest rates, which in turn will reduce investor interest in highly volatile assets, including including cryptocurrencies.

It’s too early to talk about a trend change 

The crypto market is obviously tired of the correction and ready to continue the rally. This is evidenced by the recent rebound in Bitcoin and the rise in altcoin quotes , many of which have already recovered from the spring correction. However, there is still not enough fuel for the “bitcoin rocket”.

The coin failed to hold above the critical support level of $ 40,000, which is the main line of resistance. The BTC price is holding around $ 40,000 – the 50-day simple moving average (SMA) line. However, the decline below $ 40,000 can be viewed as consolidation before the rise to $ 50,000.

If Bitcoin can gain a foothold above $ 40,000, then growth to $ 45,000 – $ 50,000 is likely. The market is dominated by optimism and no negative factors have yet been observed – bitcoin investors are ready to increase medium-term and long positions. However, at levels around $ 40,000 and above, some of them will want to take profits, fearing a new drawdown. If the bulls win, then the market will be buzzing with FOMO.

It will be possible to speak about the restoration of the bullish trend after bitcoin consolidates above $ 50,000. Let us emphasize that it is important that bitcoin not only reaches $ 40,000 – $ 50,000, but it consolidates above these levels. Then it will be possible to again hope for the renewal of historical highs. But the continuation of the downtrend may lead to a pullback to the level of about $ 30,000.

The problem is that so far there are no serious incentives for further growth of quotations – the meager news feeds have already been exhausted. For a new breakthrough, a loud news trigger is needed: for example, the purchase of bitcoin by a large company or fund, relaxation in the regulation of the industry in China, or some kind of support from the US authorities.

At the same time, new negative news can push the MTC down at any moment. Such a trigger could be an  investigation into the activities of the management of the issuer of the dollar stablecoin Tether  – US regulators suspect them of fraud.

“The most surprising thing about this bull trap is that 99% of bitcoin traders still believe that we are still in a bull market. Fake rallies like these, which always go crazy, are very common in bear markets. We saw them almost every month during the 2018 Bitcoin bubble, ” warns the founder of CryptoWhale, Mr. Whale. He believes we are seeing a false rebound.

Now the most probable scenario for the development of trading seems to us to continue the sideways dynamics. Bitcoin missed the moment for a full reversal and will continue to fluctuate between $ 30,000 and $ 40,000 until the fall. After that, the network hashrate will finally recover and one can hope for a trend change.

But slow growth plays into the hands of bitcoin. A precipitous rally to $ 55,000 – $ 60,000 would almost certainly turn into another fall. With a smooth gradual rise, the chances of renewing new highs are much higher.

Investor and trader Sergei Zhukov said that the current rise in prices is a purely technical speculative rebound. He noted that the $ 30,000 level is a strong support – it is almost half of the maximum historical price.

Major market players buy bitcoin at the level of $ 30,000 every time it comes to this area. Therefore, the bitcoin price went into a sideways movement, due to the boundaries of $ 30,000 – $ 40,000:

“Technical analysis and cluster indicators show us that now there are no big prerequisites for further growth until September 1,” the expert said.

Sergei Zhukov also notes that quotations may go up sharply in the fall.

“Now there are active purchases of bitcoin in the region of $ 30,000 – $ 40,000, investors are increasingly withdrawing cryptocurrency to cold wallets, and 30% of holders have not sold bitcoin over the past 2 years. This suggests that in the long term, many expect the price of bitcoin to rise above $ 60,000, and are ready to buy in addition as it grows. We need a rise in business activity, which traditionally takes place in September. Bitcoin usually breaks new records by the end of the year. If such an increase occurs, then by the end of the year the price can be seen at the level of $ 90,000 – $ 100,000 , ”he predicts.

Tatyana Maksimenko believes that bitcoin has the potential for a leap up until the end of 2021, because the effect of recovering the hash rate and the computational complexity of the bitcoin network has not yet been won back. In autumn, the expert expects bitcoin to rise, possibly above $ 50,000, and by the end of the year, bitcoin may well storm $ 80,000.

Roman Nekrasov believes that it is premature to rejoice and wait for a new powerful bull cycle – several negative factors play against this at once: the alarming rhetoric of the American authorities regarding the tightening of regulation of the crypto market, their unwillingness to approve the launch of Bitcoin ETFs and the hostile policy of world regulators towards the Binance crypto exchange.

At the same time, due to the migration of Chinese miners and the withdrawal of coins to personal wallets, in the coming months, we can observe an imbalance in supply and demand, which will inevitably push the bitcoin rate up.

“This will help the bulls in the market, but it is unlikely to cause the same powerful bullish cycle that was observed in the winter and spring of 2021,” concludes Roman Nekrasov.

According to the expert, in the fall, Bitcoin may well grow to $ 50,000. Roman Nekrasov considers such a scenario not even positive, but simply moderate.

In addition to the above, among the factors in favor of the continuation of the bullish trend, we will single out the activation of  the Taproot update in the Bitcoin network , which should be implemented in November this year. It will improve the scalability and privacy of the Bitcoin blockchain, as well as reduce network fees.

Another argument in favor of new record prices before the end of the year is the undervaluation of BTC, while Bitcoin is far from the highs predicted in this cycle.

The growth phase will last another 1-2 years

The market is ready for a new rally and is striving for it. The bears have been hit hard, but they are not giving up. If you are a long-term investor, then there is no need to worry: in the long term, Bitcoin is almost doomed to rise in price .

At the same time, there are no fundamental reasons for a decrease in demand for bitcoin in the long term. On the contrary, the market is developing rapidly, and the number of cryptocurrency users has already  exceeded  221 million people.

Experts believe that the current phase of bitcoin growth will last until the end of 2022 – 2023. Sergei Zhukov believes that the spring fall in the BTC price is just a deep correction within the global upward trend.

“Now in the world, digitalization and blockchain technologies are gaining momentum, so you won’t have to wait long for a bull market ,” concluded the expert.

“Bitcoin price at the end of July was $ 41,490 … it bounced off the lows like an hour ,” wrote an analyst and author of the Stock-to-Flow model, which predicts the price of Bitcoin at $ 100,000 – $ 288,000 by the end of this year.

Tatyana Maksimenko believes that such a powerful rally, which we saw from the summer of 2020 to the spring of 2021, is unlikely to happen again before the end of 2023. All of the above positive factors, of course, will contribute to the growth of the cryptocurrency rate, but they are not strong enough to provoke a powerful bull cycle.

“Expecting“ to the moon ”is from the end of 2023 on the eve of the next halving, which will take place in the spring of 2024. So I think that Bitcoin will rise above $ 100,000 at this very time, ”the expert summed up.

Roman Nekrasov believes that the current stage of bitcoin growth will last sometime until the spring of 2022. Then, in the absence of any significant news, for example, the approval of a bitcoin ETF , bitcoin will again enter a phase of stagnation, which will last sometime until the fall of 2023. And there the effect of waiting for the halving of 2024 will already begin to affect.

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