8 Reasons why BTC Rally May or May Not Continue
Will Bitcoin continue its rally or bears are winning this year? Any ideas? Here are 8 main considerations on bulls and bears. So who is winning?
Bitcoin Bears. 4 reasons why they could win
- Bitcoin Safe Haven
Maybe the most important but still open question that everyone asks is Bitcoin price correlation. Is it a correlated asset that is growing and falling together with other securities like bonds, commodities, and stocks? Or is Bitcoin a non-correlated asset and a valuable hedge to diversify investment portfolios?
During 2019 Bitcoin’s price movements were not correlated to other assets. But when the COVID-19 pandemic hit the worldwide economy, the most valuable digital coin plummeted like everything else. That is why we are still in doubt about the non-correlation thesis.
- Regulatory Threats
The uncertainty from the US regulators regarding cryptocurrency is bothering even more. The Trump Administration was always silent regarding Bitcoin but in 2019 Trump broke the silence saying he’s “not a fan.” He then associated crypto with illegal activity like the drug trade.
Meanwhile, President Joe Biden nominated Janet Yellen to head the US Treasury. Biden also froze on all new rules until his administration reviewed them. A proposal by Yellen’s precursor at the Treasury to regulate autonomous cryptocurrency wallets was also put on freeze. And as we all know, the Crypto market cannot stand uncertainty.
- The Double Spend Panic
There was a rumor on Wednesday that a mining pool double-spent USD $21. BitMEX Research caught an RBF transaction on the chain. Replace-by-fee transactions are normal features of the Blockchain. Keyholders can resend a transaction that hasn’t yet been confirmed making a higher mining fee.
Gaurav Agarwal, the Open Source Cloud architect from San Francisco said that developers who proposed RBF in BIP125 implemented it in Bitcoin Core 0.12.0 in 2016. The Blockchain scaling masters at Bitcoin Optech hold a copy of the primary source code.
Of course, a double-spend rumor became viral and unfortunately caused a Bitcoin price to fall on Thursday.
- Overbought Causes Holders to Take Profit
Sellers can be justified for taking profits, as Bitcoin price went twice as far compared to its previous ATH in December 2017. And all this happened during a 3-month rally. The first crypto asset went from $10,000 in September up to $20,000 per coin by December for the second time ever.
Bitcoin Bulls. 4 reasons why they could win
- A Tsunami of Institutional Investments
Hedge funds are pouring capital into the cryptocurrency market.
“Grayscale saw its assets under management skyrocket as Wall Street used it as a proxy to invest in bitcoin. The New York-based investment firm kicked off last year with $2 billion in assets and ended with more than $20.2 billion. That 900% increase was driven by demand from institutional investors such as hedge funds, endowments, and pension funds, the company said in a quarterly report Thursday.” –CNBC, Jan 14, 2021.
- Celebrities are into Bitcoin
The retail crowd is getting more into crypto than ever. Google search for "Bitcoin" today is 10x its September 2020 volume.
Famous celebrities are entering the Bitcoin community, social media channels are promoting crypto with the power we could not imagine before. For instance, last May J. K. Rowling asked someone to explain BTC to her. Elon Musk was among other crypto enthusiasts who answered her. A few months later Paris Hilton auctioned a picture of a cat for more than $16,000 in Ether. Ashton Kutcher joined the ETH art auctions in August.
Then Maisie Williams, Arya Stark from “Game of Thrones,” asked her followers on Twitter if she should “go long on bitcoin?”
- Limited Supply
Bitcoin is deflationary by design as it has limited supply and a fixed rate of issuance, which reduces by half every 4 years. It’s not a surprise that the unprecedented monetary expansion that caused a deflation in 2020 made BTC skyrocket twice as high compared to 2017.
- Bitcoin`s Strong Fundamentals
In the time of the Bitcoin bubble in 2017, Peter Boockvar from Bleakley Advisory Group called BTC a “gigantic price chase based on nothing.” But it is not.
Bitcoin is based on the great efforts and expense of 10,000 full nodes globally, aimed to maintain, secure, and update a completely transparent public ledger. Bitcoin is a fast service, it is accurate, and low-fee accounting that is accessible to anyone with a computer and Internet.
It's not a big deal that Bitcoin’s price has lost almost 16% from January 8 to January 12, its fundamentals became even stronger.
The demand to mine BTC continued its growth despite the panic. Glassnode data showed the number of active addresses that were rising to the new All-Time High on January 8. But by January 11, BTC trading volume on exchanges crossed its previous ATH already.