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Many Bitcoin supporters have preached that the asset could reach $ 100,000 or more in 2021. Now that Bitcoin has fallen to $ 30,000, a solid dose of fear has entered the market. Is a sustained bull market still realistic after the recent crisis?
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Fear, uncertainty and doubt
Bitcoin’s price volatility due to misguided headlines and Elon Musk’s escapades on Twitter shows how little space is understood by most. More recently, headlines indicated that the FBI had found the private key of the Colonial Pipeline hackers, leading many to believe that Bitcoin itself had been hacked.
In fact, the FBI found the wallet because it was stored online or on an exchange. In other words, the wallet that contained Colonial Pipeline’s Bitcoin was using poor security or was attempting to sell it on a centralized exchange that requires KYC (know your customer), which allows the FBI to easily access it.
In the case of Tesla and Elon Musk, a misunderstanding over the use of Bitcoin mining energy has caused them to no longer accept Bitcoin for their vehicles. The price then fell by a significant amount. Many Bitcoin enthusiasts would say that no company or individual has the power to influence the price so strongly, but the correlation is too close to ignore.
What Musk and Tesla missed is that studies have shown that 76% of miners use some degree of renewable energy in their facilities and that 39% of all mining activities are done entirely with renewable energy. On top of that, renewables are getting cheaper and more common, which means these numbers will only increase over time.
While Tesla blamed Bitcoin’s energy consumption for its decision, there could have been an ulterior motive. Many have pointed out that Tesla derives a huge chunk of its profits from clean energy credits. These credits must be requested and then approved by the Environmental Protection Agency.
In the past, the EPA has clashed with the New York State Department of Environmental Conservation over Bitcoin mining in the state, suggesting that the agency may not like -be not too this practice.
Most of the news over the past month has been mostly negative and also confusing, creating fear in the market leading some to sell.
What do the graphics say?
As the price of Bitcoin has fallen due to confusion among the media and investors, simple supply and demand could still factor into the price of Bitcoin in the months to come.
One of the most popular and so far most accurate ways to track the price of Bitcoin has been its stock-to-flow ratio. This means the supply currently available, or the amount of Bitcoin currently on the market divided by the supply generated, or the amount of Bitcoin generated by mining.
The amount of Bitcoin rewarded to miners is halved every four years, reducing the incoming supply and availability of Bitcoin on exchanges, making them harder to find. So far, the price of Bitcoin has reflected this growing scarcity over time, but recent uncertainty in the news has caused a deviation from that path.
https://stats.buybitcoinworldwide.com/stock-to-flow/
Bitcoin’s stock-to-flow ratio suggests it should hit around $ 100,000 around mid-August, but while the price generally follows this trend, it doesn’t always exactly follow its line.
In the past, it has seen large deviations above and below the stock-flow ratio. Large deviations above the ratio are the result of fear of missing out and market euphoria. The deviations below the line were caused by market uncertainty over regulation, centralization, security and now environmental concerns.
Now the question is whether or not Bitcoin will realign itself to its stock-to-flow ratio. While it has corrected this trend in the past, it is uncertain whether it will come back and continue its march towards the $ 100,000 territory or if it is heading into a bearish cycle.
Long-term holders
Perhaps one of the most telling aspects of the health of the market is the behavior of long-term holders. In the recent market collapse, the address balance that accumulated Bitcoin has increased as the price has fallen.
https://studio.glassnode.com/metrics?a=BTC&category=&m=addresses.AccumulationBalance&s=1609481936&u=1623196800&zoom=
At the same time, the number of addresses that accumulate Bitcoin saw an even more drastic increase, increasing sharply as the price fell sharply, suggesting that these addresses are using the lowest price.
https://studio.glassnode.com/metrics?a=BTC&category=&m=addresses.AccumulationCount&s=1609481936&u=1623196800&zoom=
This information may also suggest that younger addresses, or new investors, exited the market due to new and uncertain market conditions, while older addresses not only stayed, but also accumulated more.
Adoption
While all of this uncertainty is occurring, there has been a breath of fresh air from Latin America recently. It was announced at the Bitcoin 2021 conference that El Salvador will adopt Bitcoin as legal tender. This means that residents of the nation could conduct Bitcoin transactions without capital gains taxes and the government would accept Bitcoin for USD and vice versa.
After the announcement, several Latin American leaders and politicians called for similar action. First, a leader from Paraguay said the country needs to move forward with the new generation. He then said: “The real one on the moon #BTC.”
In what looked like a cascade of falling dominoes, politicians from Panama, Brazil, Mexico, Argentina and others all began to support the adoption of Bitcoin as legal tender in their respective countries. The motivation for such a decision was multifaceted: too much reliance on the US dollar and inflation, large populations of unbanked citizens, and as a means of attracting more entrepreneurs.
While only El Salvador has decided to adopt Bitcoin as legal tender, any further adoption would be significant for Bitcoin. This would increase its user base among 2nd and 3rd world countries and potentially cause a butterfly effect among countries seeking financial inclusiveness for their citizens.
What is happening now?
While news from Latin America has certainly invigorated the market (up nearly 9.5% at the time of writing), Bitcoin still has a long way to go to hit the 100,000 mark. $ that so many demand.
If the stock-flow pattern is still intact, the recent collapse could delay the peak of this cycle until later in the fall instead of mid-August, as the model suggests. It wouldn’t be too unusual as the price of Bitcoin has exceeded the pattern on several occasions. In fact, Bitcoin’s price has been above its stock-to-flow ratio for about six months, from late December to mid-May of this year.
The sad reality is that Bitcoin, as well as the crypto markets in general, looks extremely reactionary on the news, even if the news does not have much credit. With that in mind, it is difficult to determine how Bitcoin will perform in the future.
That said, the negative news from last month appears to have been turned into a positive narrative, that of the banking of the unbanked Latin American region of the world and the financial inclusion of its people. If this positive trend continued in other countries, we might see some important reflection on the price of Bitcoin.
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