By Matrixport Research

Summary

  • BTC Price Trend: Based on the 5 key BTC price indicators and data as of 30 November, BTC price looks to be slightly stretched and could be due for a correction.

  • Market Trends: As the Bitcoin rally continues into November, prices are closing in to the all-time high of $20.1k (17 December 2017). While there is a sense of déjà vu, the market structure and dynamics have evolved in the last 3 years. With a diversifying investor base and changing narratives, Bitcoin is expected to avoid repeating the boom and bust situation in late 2017/early 2018.

  • Abnormal Activity Tracker: There has been no abnormal activity seen in the month of November except for the first three days of November (Bitcoin network, abnormality was accounted for and discussed in previous report).

BTC Price Trend

Based on the 5 key BTC price indicators and data as of 30 November, BTC price looks to be slightly stretched and could be due for a correction. Overall:

  • NVTS is a short-medium term bull/bear indicator. Current NVTS value is 108.7, on the high end of the scale, indicating that BTC could be overvalued;

  • MVRV is a short-medium term bull/bear indicator. Current MVRV value is 2.64, on the higher end of the scale, suggesting that BTC could be overvalued；

  • Mayer Multiple is currently 1.72 and has been on a rise lately, showing a bullish sign for BTC prices. However, it is near to the critical value that suggest a market bubble could be forming；

  • Bitcoin Difficulty Ribbon is a short-term buying indicator and has remained compressed for a period of time. Therefore, no clear price indicator could be derived from the trend；

  • During the timeframe of this report, funding rate has not shown any abnormality, therefore no short-term price signals are provided.

As discussed per our previous report “Price Indicators Deep Dive and Bitcoin Price Analysis”, there are limitations to the aforementioned indicators, and these indicators should only serve as suggestions and not investment advice.

Market Trend

Mutual fund legend Bill Miller predicts that every major investment bank will own Bitcoin or similar investments, ushering a new era of institutional money for the benchmark cryptocurrency. Miller said that the risks of Bitcoin becoming worthless is lower than it has ever been before. Miller revealed that his MVP1 hedge fund allocated half of its investments in bitcoin.

Galaxy Digital’s bitcoin funds raised $58.7 million in their first year, mostly from wealthy investors eager to benefit from the surging cryptocurrency. The funds have attracted high net worth individual with an average allocation of $1.66m per investor.

Guggenheim Funds Trust filed an amendment with the U.S. Securities and Exchange Commission to allow its $5 billion Macro Opportunities Fund gain exposure to bitcoin by investing up to 10% of the fund’s net asset value in the Grayscale Bitcoin Trust (GBTC). The amendment has been approved by SEC, therefore the fund will be able to invest up to $497m in GBTC.

Commentary: Institutional money continues to flow into Bitcoin and other cryptocurrencies. With endorsement from high profile investors, Bitcoin is gaining attention and popularity as an alternative investment opportunity. With more institutional money flowing into the space, this will lift the demand of Bitcoin, and in turn boost prices. This also bodes well for the space as diverse money inflows could reduce volatility and increase liquidity.

Billionaire hedge fund investor Stanley Druckenmiller became the latest high profile ultra-high net worth investor to invest in Bitcoin. Druckenmiller, an avid supporter of gold, has recently invested in Bitcoin and predicted his Bitcoin investment will outperform gold. In his opinion, Bitcoin has higher beta and attraction as a store of value to both millennials and US investors.

In its latest report, JP Morgan said more family offices are looking at Bitcoin as an alternative to gold. According to analysts, more family offices are selling their gold exchange-traded funds holdings for Bitcoin. Gold backed funds have suffered $5b in cash outflow while Grayscale Bitcoin Trust, the preferred vehicle for institutional investors, has doubled in dollar terms since the start of August.

In November, BlackRock Inc. Chief Investment Officer for Fixed Income Rick Rieder announced that Bitcoin is here to stay as demand among millennials and its strength as a medium of exchange will continue to support its mainstream adoption. He stated that trading Bitcoin is more functional than passing a bar of gold around. He believes Bitcoin will continue to draw institutional money away from gold and become a viable alternative.

Commentary: The debate of Bitcoin replacing the role of gold as a safe-haven financial asset has been reignited on Wall Street recently. In this round of debate, more analysts and investment managers have supported the development of Bitcoin as a viable alternative to gold, functioning as an inflation hedge and portfolio diversifier. Bitcoin’s market capitalization is currently only 3.1% the size of gold and should the shift from gold to Bitcoin continues, this could imply that Bitcoin prices will continue to surge. At the minimum, there seems to be consensus that there will room for both gold and Bitcoin to grow, particularly in light of inflation and extreme debt levels.

Chainalysis unveiled a program for storing and selling forfeited crypto in partnership with confiscated asset consultancy Asset Reality. The program will likely cater to many of the same government clients that already pay Chainalysis millions of dollars annually to help trace illicit crypto transactions. Chainalysis is targeting to partner with the US Feds to sell over $1b in BTC that was seized in the raid of Silk Road.

Chinese authorities have seized a massive $4b in crypto from PlusToken scam. The seizure confiscated 194,775 BTC, 833,083 ETH, 487 million XRP, 79,581 BCH, 1.4 million LTC, 27.6 million EOS, 74,167 DASH, 6 billion DOGE and 213,724 USDT. While the authorities have expressed an interest in selling the forfeiture in the open market, it is currently unknown if the sales have taken place or will take place. Previous selloffs of ill-gotten gains have been linked to drops in the price of bitcoin due to the sudden spike in supply.

Commentary: Governments have typically chosen to sell seized crypto in block sales, resulting in huge short-term spike in supply of crypto. In previous occurrence, such sales have caused a temporarily depression of prices as the market is unable to absorb such a large supply. Should both the Fed and Chinese government choose to sell the forfeited crypto in the same period, such a large amount will likely cause a downwards pressure on prices in the short term. However, it is noteworthy that the market has expanded and increased its liquidity compared to previous sales. Therefore, the impact of the potential sales on prices could be more muted comparatively.

In the latest research by Blockhead Capital, analysts found that the spot market is the main driver for the recent Bitcoin price rally. Unlike previous rallies, derivatives markets are playing a markedly less prominent role, demonstrated by mild liquidation volumes. In the same analysis, the company found that retail and institutional investors from North America have accounted for the main bulk of bidding, diversifying the geographical reach of Bitcoin.

Compared to the previous bull market in 2017, the friction to buy cryptocurrencies have reduced greatly with the entrance of PayPal and Square. The participation of the fintech giants have made it easier for more investors to access cryptocurrencies without jumping through the hoop. This new development has changed the dynamics of the crypto market, with spot volume, retail interest and North America weightage booming in the latest quarter.

Since 2017, the overall dynamics of the Bitcoin market has changed. In 2020, the number of Bitcoin addresses holding at least 1,000 BTC have been increasing and these accounts have adopted a buy and hold pattern compared to 2017, where they were actively trading and selling BTC at the peaks. Institutional participation in Bitcoin has also increased drastically from 2017 as more regulated and established exchanges opened their business to cater for institutional investors. The investor base has diversified greatly over the years. In 2017, East Asia investors accounted for majority of the purchase with low level of participation from North America investors. In the latest rally, North America represented a bigger share of purchases.

Commentary: The Bitcoin rally of late 2020 possess some shadows of the epic boom and bust market in late 2017 and early 2018. Prices are rallying at a rapid pace while number of cryptocurrencies related headlines on mainstream media have increased in the latest quarter. Despite some resemblance, the new rally has shown promises of not being a flash in a pan. The investor base has broadened with participation of institutional investors and investors globally. The demand for Bitcoin along with the current macro-economic situation should provide support for prices. With reduced leverage and increased market liquidity, the market should be less volatile compared to 2017. The above factors should reassure investors and improve confidence in Bitcoin as an asset.

Abnormal Activity Tracker

After showing much congestion in the earlier months, the ETH network has smoothened, and network fees and gas prices have dropped back to normal levels.

Apart from 1st to 3rd November, where the network continued the trend of late October, the rest of the month showed no abnormal activity. The BTC network reverted to the norm as the total hashrate rebounded as Asian miners continue to bring their machines back online after relocation. Transaction fees have fallen back to normal levels.

Disclaimer

Matrixport provides this analysis as general information only. Matrixport accepts no responsibility for the accuracy or completeness of any information herein contained and Matrixport shall not be responsible for any loss arising from any investment based on any forecast or other information herein contained. The contents of this materials should not be construed as an express or implied promise, guarantee or implication by Matrixport that the forecast information will eventuate. The cryptocurrency market is highly volatile. Buying, selling, holding, or investing in cryptocurrencies or related product carries various risks and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before participating in the cryptocurrency market. Matrixport is not acting as a financial adviser, consultant or fiduciary to you with respect to any information provided. Any information available here is “general” in nature and for informational purposes only.