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What is the Bitcoin hash rate? And why is at all-time highs?

Key Takeaways

  • The Bitcoin hash rate is the amount of computing power contributed towards mining
  • It has continued to take new all-time highs
  • This squeezes miners’ profitability, at a time when electricity costs have risen and the Bitcoin price has fallen
  • Overall, a high hash rate implies a healthy and more secure Bitcoin network

 

“All-time high” is a phrase I haven’t used in a while when covering the cryptocurrency space. But if you look, there is something that continues to hit higher highs, and that is the Bitcoin hash rate.

Bitcoin’s hash rate refers to the amount of computing power that is being contributed to the network through mining. And as the chart below shows, its inexorable rise during the pandemic does not seem to be slowing down. But what does this mean, and why is it rising?

What is the Bitcoin hash rate?

Gone are the days when anyone could mine on their personal computer. Today, mining is dominated by large mining pools, using specialised computers specifically designed for this purpose.

The practice of mining actually involves these computers solving complex mathematical puzzles. Once this puzzle is solved, the latest block of transactions can be validated and attached to the blockchain, before the process repeats regarding the next block and the next mathematical puzzle. Once a puzzle is solved and a block validated, the miner responsible for this work gets paid in newly created bitcoins.

This is all very complicated, but what is important to understand is that Bitcoin is programmed to release a specific number of Bitcoin over time, with the blockchain coded such that a new block is added (validated) every ten minutes.

But as more computers join the network and the hash rate increases, these puzzles should get solved quicker, meaning quicker block time and more bitcoins released. Right? Well, here is the thing. A difficulty adjustment is coded into Bitcoin – that means that the more computing power that joins the network, the harder it is to solve those puzzles.

Don’t ask me how this works, because I don’t even come close to understanding what is under the hood of the mythical beast that is the Bitcoin blockchain, but the main point is that as more miners join, the difficulty goes up.

And as Bitcoin has become more popular (and risen in price), that is exactly what has happened. More miners have joined the network, and today it is a highly advanced process. Ten years ago, when only few miners existed, you and I could have pulled out our laptops and mined to a reasonable degree.

Why is at all-time highs?

There are a number of reasons why hash rate continues to surge to new highs. But the bottom line is that the increase in miners causes the hash rate to climb.

Thus the question really asks why miners are continuing to join, when the price of Bitcoin has been plummeting. There are a couple of potential answers here.

The first is that during the pandemic bull run, mining equipment was scarce and prices for items such as chips were sky-high. Many miners ordered new mining rigs during the bull run, but only received the equipment recently (or some, not even yet).

Additionally, as the price of Bitcoin fell, the profitability of mining also decreased, given miners’ revenue is denominated in Bitcoin. New mining equipment has been developed and is selling for a lower price than previously, helping to push the number of miners higher.

One other theory is the Ethereum Merge. This took place in September, when Ethereum transitioned from Proof-of-Work to Proof-of-Stake, meaning mining on the network ceased. Hence, some of these out-of-work Ethereum miners transitioned across to Bitcoin mining.

What does a higher hash rate mean?

The first consequence of an increasing hash rate is obviously greater pressure on miners. More competition and a higher required hash rate squeeze their profitability, especially at a time when electricity costs have risen and revenue (Bitcoin) has fallen.

The best way to see this is to glance at the share price action throughout 2022 of some of the public mining companies.

On the positive side, the Bitcoin hash rate is considered a security metric for the network. The higher the hash rate, the more secure the network, so in that context, the all-time high represents a good thing.

This is why a high hash rate is generally looked upon favourably, as it implies a healthy network. Only problem is, miners are feeling the squeeze.

The post What is the Bitcoin hash rate? And why is at all-time highs? appeared first on CoinJournal.

El Salvador’s Bitcoin City wins architectural design award

  • El Salvador is the first country that recognised Bitcoin as legal tender.
  • Bitcoin City has been recognised as a sustainable and highly efficient project.
  • El Salvador is building the new city in the country’s East, with clean energy entirely sourced from nearby volcanoes.

El Salvador made history when it became the first country in the world to adopt Bitcoin (BTC) as legal tender. The country also announced an ambitious project dubbed ‘Bitcoin City’ – a move that continues to inspire many other nations and jurisdictions across the world.

Importantly though, and in one of the many positive news around the El Salvador Bitcoin bet, the eco-friendly project Bitcoin City has just received international recognition.

According to a news report by Noticias de Bariloche, Bitcoin City won an award after getting a thumbs up approval from a panel of experts over its architectural design.

The award was given by LOOP, a Costa Rica-based sustainable architecture and design studio. Per the the LOOP Designs Awards 2022 website, Bitcoin City was picked as category winner from a pool of 705 submissions from 56 countries.

Volcano-powered Bitcoin city

EL Salvador’s Bitcoin City is a new city project under development in the country’s East, and is designed by Fernando Romero Enterprise EE, a Mexico-based design studio. The project features revolutionary urban planning with Bitcoin and nearby volcanoes powering financial investments and everyday activities.

The two volcanoes (Tecapa and Conchagua) will provide clean energy.

A number of incentives for investors will make this city a reference on how to make a city both efficient and sustainable at the same time,” LOOP wrote in a brief description of the project.

As CoinJournal previously reported, building Bitcoin City is expected to take at least ten years.

El Salvador proves critics wrong on Bitcoin bet

On Tuesday, El Salvador president Nayib Bukele slammed international media for their negative reporting on the country since it adopted BTC as legal tender. His comments came as the country repaid in full its $800 million in maturing bonds – despite Bitcoin price plummeting in 2022.

Mainstream media reports had pointed out that El Salvador risked defaulting on the payments if it failed to strike a deal with the International Monetary Fund (IMF). President Bukele slammed the forecasts by “experts” and rating firms for their “lies”.

The post El Salvador’s Bitcoin City wins architectural design award appeared first on CoinJournal.

Popular altcoins to know

  • Cryptpcurrencies, Bitcoin and are altcoins – what’s the difference? 
  • What are the different types of altoins?
  • Ethereum (ETH) and Tether (USDT) – the two most popular altcoins.

Do you know there are thousands of alternative coins, or altcoins? In the ten years since Bitcoin’s genesis block was created, thousands of alternative cryptocurrencies, or altcoins, have emerged as a result of blockchain innovation.

Altcoins are any coins or tokens that isn’t Bitcoin. Altcoins and their respective platforms can be created by anyone with an internet connection because blockchain is open-source. The variety of altcoins is growing. 

Needless to say, altcoins have come a long way since Namecoin, the main altcoin, introduced the idea of colored coins that resembled non-fungible tokens, also known as NFTs

Popular altcoins: What exactly are they?

Traditionally, altcoins are created to fill a need that arises from perceived market gaps that Bitcoin does not fill. Each digital asset is created with a specific goal in mind, some of which are similar to one another.

Tokens of use: Within a network, these offer services like purchasing services, paying network fees, and redeeming rewards.

Tokens of payment: These are exchanged for value in the form of currency.

Tokens for security: The Securities and Exchange Commission is in charge of these tokenized assets, which are traded on stock exchanges and held by an organization.

Stablecoins: In order to provide relative price stability, the value of a stablecoin is tied to an external reserve asset, such as precious metals or fiat currencies.

Memecoins: Memecoins are often created to take advantage of short-term gains and are based on viral internet trends.Heard of Dogecoin?

Tokens for governance: Users can vote with these utility tokens on a decentralized blockchain.

Altcoins can be created from scratch or, more frequently, forked from a code that already exists. When a blockchain separates from its parent chain to form a new network that adheres to a different software protocol, a fork takes place. The parent network is typically Bitcoin or Ethereum. Forks typically occur when developers disagree about the direction of a platform. They might change the source code to start a new chain. 

Why an altcoin?

There are numerous factors that draw crypto investors to altcoins. They are what Bitcoin calls the “better mousetrap,” which means that they operate on improved versions of their previous blockchain networks. 

Altcoins are the result of inventive solutions to previously unsolved software flaws, inefficiencies, and vulnerabilities. Due to their adaptability, altcoins have a better chance of long-term survival and more utility. They are better prepared for market developments in the future thanks to their adaptability in the crypto economy, which is unmatched by Bitcoin. 

Lastly, because tokenomics is still in its infancy and there is room for expansion, altcoins are much more accessible. Altcoins, on the other hand, is regarded as a more risky investment. Altcoins have limited liquidity, a high level of market saturation, a smaller market cap, and a lack of credibility. They are also susceptible to scams, despite their relative price resilience. 

We are highlighting the 20 market-favored altcoins that have come out on top halfway through 2022, which is another year marked by high volatility and a loss of $2 trillion. Major players ought to take advantage of the view while it lasts because, in crypto, tomorrow is not promised. 

How to know DAO?

Decentralized autonomous organization, also known as an entity structure in which token holders, as opposed to a centralized authority, participate in the management and decision-making DApps for decentralized finance: software that can run entirely on a blockchain, also known as decentralized applications 

NFTs: non-fungible tokens, also known as digital assets.

ERC-20: a token standard that is part of Ethereum and lets dApps use smart contracts to make their own coins or tokenized assets. 

PoW lines: A consensus mechanism known as proof of work (PoS) only verifies a transaction after a certain amount of computational effort has been put into it. 

Popular altcoins

The Ethereum cryptocurrency logo is a proof-of-stake consensus mechanism that avoids the computational power required in a PoW model by designating a class of its users to validate transactions.

Ethereum (ETH)

Ethereum (ETH) is the preferred blockchain for developers. Ethereum is a global decentralized software platform that uses blockchain technology and introduced smart contract functionality to DeFi. 

In essence, Ethereum makes it possible for computer programs to automate transactions between two parties, eliminating the requirement for a middleman and reducing transaction costs while simultaneously increasing reliability. 

It serves as a layer 1 or base network that can be built upon by anyone in the public. It currently supports 2,970 dApps and has more than 48,000 daily users. Many people consider Ethereum to be a pillar of the cryptocurrency space rather than an altcoin because of its centrality to the infrastructure of DeFi as we know it. 

Tether (USDT) 

Stablecoin vanguard, Tether is a first-generation centralized coin that guarantees a one-to-one fiat currency match and is fixed to the value of the US dollar. 

The stablecoin, formerly known as Realcoin, was created in 2014 by developers Brock Pierce, Reeve Collins, and Craig Sellars to give investors a way to enter the cryptocurrency market without having to deal with its notoriously high volatility. Tether supports a variety of international currencies in addition to Ethereum and Bitcoin, as well as other well-known blockchains like the British pound and the Mexican peso. 

The USDT, its native coin, consistently surpasses Bitcoin’s trading volume record for any cryptocurrency. 

In an $18.5 million settlement in February 2021, a New York attorney general found Tether to have “recklessly and unlawfully covered up massive financial losses to keep their scheme going,” despite the company’s assertion that all transactions are fully backed by its reserves. Since then, Tether has changed its focus to U.S. Treasury holdings rather than commercial paper holdings and increased transparency across its website. Treasury Bills, while 28% are made up of commercial paper. 

According to an official statement released in June, Tether intends to eventually reduce that number to zero. When the algorithmic stablecoin Terra crashed for $40 billion, it sparked a Tether run, prompting a large number of investors to withdraw their coins out of fear of insolvency. This provided an opportunity to disprove rumors and allegations. 

By redeeming $16.3 billion, the company reduced the USDT supply by 20%. 

Conclusion 

We hope now you are familiar with alcoins. Either centralized or decentralized, all cryptocurrency-selling platforms fall into one of the above-mentioned altcoins. Similar to an issuing bank, a centralized authority is responsible for approving transactions and maintaining the blockchain ledger in centralized cryptocurrency exchanges (CEX), like Tether and Bitcoin. 

A trustless, encrypted ledger that is validated by consensus and distributed to everyone in the chain is used in decentralized exchanges or trading platforms like thequantum-ai.com. Ownership is yet another important consideration. In contrast to centralized systems, token holders in a decentralized system retain full ownership of their digital assets.

The post Popular altcoins to know appeared first on CoinJournal.

Nearly 13 million bitcoins have not moved in over a year, an all-time high

Key Takeaways

  • An all-time high of 12.7 million bitcoins have not moved in over a year
  • That translates to two-thirds of the circulating supply
  • Only 7% of bitcoins have moved in the last month
  • History shows that long-term holders tend to rise as price falls, which may seem counter-intuitive
  • The real story is a little more nuanced, as falling trade volumes in bear markets provide a lurking variable which affects the data

 

One of the intriguing things about blockchain is the public availability of all sorts of stats about the network.

A lot is made of the fixed supply cap of Bitcoin, with the final supply of 21 million bitcoins slated to be hit by 2140. Bulls use this as a case in point as to why the asset is programmed to expand in price, as its scarcity will inevitably squeeze the asset upwards.

By looking on-chain here at https://coinjournal.net/, we noticed a quirk in this data.

Long-term holders continue to grow

Despite the bloodbath that was cryptocurrency in the year 2022, long-term holders have continued to accumulate. Out of the 19.27 million bitcoins currently in circulation, 12.77 million bitcoins have not moved in over a year – an all-time high.

It’s a pretty significant number. In the following chart, I have plotted these bitcoins against two other categories: firstly, bitcoins that have moved in the last month (traders), and secondly, bitcoins that have not moved in over a month but have moved within the last year (medium-term holders).

Currently, we have 66% of bitcoins unmoved in over a year – again, an all-time high. The previous high was in September 2020 when the mark hit 63%. Prior to that, the previous high was April 2016 at 60%. 

A further 27% of bitcoins have not moved in the last month, while the remaining 7% can be seen as traded bitcoins, moving around the blockchain in the last month.

Why are long term holders growing?

The obvious question is, why? Why are we seeing long-term holders growing so substantially when the market has been getting pummelled?

Well, I decided to chart the percentage of long term holders against the bitcoin price. And the result is quite interesting – there definitely seems to be at least a moderate inverse relationship between price and long-term holders. That is, when price falls, long-term holders rise. Hmm.

But in truth, this makes sense. As the price falls, volumes and interest in the market tend to dry up. With that, comes less trading, and by definition less holders under the one-month threshold.

While the narrative of long-term holders soaking up increasing amounts of the Bitcoin supply is often painted in a bullish light, I’m not sure that tells the whole story when considering this historical pattern.

Sure, it is a positive thing that the number of bitcoins that have not moved in more than one year are climbing, as it does show that these long-term holders have tended not to capitulate during the drawdowns.

But a healthy trading market and high liquidity is associated with a bull market, which is part of the reason we are seeing an inverse relationship here. Look no further than trading volume in 2022, which fell 46% on centralised exchanges compared to the previous year – that’s trillions of dollars of activity no longer present.

“Trading volumes have cratered across the crypto space. This has pulled down activity and it’s not surprising that the portion of bitcoins traded recently is therefore falling. The analysis of long-term holders is a more nuanced issue than the crude assumption that ‘more bitcoins in long-term wallets is bullish and therefore price will go up’. That is simply not what we have seen historically” said Max Coupland, Director of CoinJournal.

I’ll continue to monitor all on-chain activity, as the market is certainly showing more life in these early stages of 2023, with softer inflation data giving impetus to the market that we may pivot off high interest rates sooner than previously expected. It will be interesting to keep tabs on the dynamics on-chain, therefore.

But next time somebody declares it obviously bullish that there are less bitcoins being flung around the markets, perhaps remember that the situation is a little more complex than that.

If you use our data, then we would appreciate a link back to https://coinjournal.net. Crediting our work with a link helps us to keep providing you with data analysis research.

The post Nearly 13 million bitcoins have not moved in over a year, an all-time high appeared first on CoinJournal.

Why is Ethereum being outperformed by Bitcoin? Historical pattern changing in 2023

Key Takeaways

  • Ethereum has historically outperformed Bitcoin in bull runs
  • The pattern has flipped to start the year, with Bitcoin dominance rising 
  • Our Analyst Dan Ashmore jumps on-chain to look through history, and show how and why the pattern is changing

The Flippening, huh? Nothing incites debate within crypto circles quite like it. 

Referring to a scenario where Ethereum flips Bitcoin for the number one spot in the cryptocurrency ranks, the Flippening is anything from inevitable to delusional, depending on who you ask. 

I’m not sure I want to walk across the eggshells of that debate, for fear of my Twitter DMs, but I noticed something pretty interesting today when digging into the data on Ethereum vs Bitcoin. 

Ethereum is strongly correlated with Bitcoin

Firstly, the obvious. Ethereum is incredibly correlated with Bitcoin because, well, it is a cryptocurrency, and every crypto’s fate is tied to that of the orange coin. We know this by now. 

The graph below shows how tight this relationship has been since Ethereum went live back in 2015. 

But while these two best buddies follow each other around across the price charts, there are scenarios where they diverge a little bit. The famous ETH/BTC ratio is one which Ether fans in particular keep a keen eye on. 

It peaked in June 2017 at close to 0.15 before freefalling down to 0.025 before the end of the year. Today, it trades at around 0.07. 

Ether is better at bull markets than Bitcoin

You may have noticed that the previous ETH/BTC chart resembled the shape of the crypto market overall, through its many ups and downs. 

I plotted the price of Bitcoin against this ETH/BTC ratio. Indeed, the ratio rises as Bitcoin rises, and falls and Bitcoin falls. Using the Bitcoin price as a proxy for the whole industry, this suggests that the ETH/BTC ratio rises in bull markets and falls in bear markets. 

This makes sense. Bitcoin is often referred to as the boomer coin. I quite like it that way, despite it being meant as an insult, by the way. But it’s an understandable moniker because Bitcoin does move like a pensioner during bull markets when compared to altcoins. 

Ether may be the largest of the altcoins, but it still outperforms Bitcoin when the bulls are out to play. 

On the flip side, Bitcoin outperforms when the party ends. And by outperform, I mean that it tends to drop 60% as opposed to 70%. But hey, that’s for another day.

Pattern has flipped in 2023

But the price charts are showing something different. One month into the new year, Bitcoin has surged while the ETH/BTC ratio has fallen – precisely the opposite of what has happened historically. 

I charted the ratio back to the start of November, when Sam Bankman-Fried’s fun and games were revealed to the world and crypto fell, with Bitcoin cratering down to $16,000. 

The chart shows that the pattern remained as you would expect, i.e. the ratio fell as crypto and Bitcoin pulled back. But as we turned the page into 2023, the crypto market flipped and Bitcoin soared. Only problem is, ETH didn’t follow, but rather the ratio has fallen, from 0.077 on January 11th to 0.068 currently, despite Bitcoin spiking from $17,400 to close to $23,000 over the same period. 

Why? Honestly, I’m not sure. It’s unusual. 

Bitcoin is up 36% on the year whereas Ether is only up 29%. Yet looking at the returns of other altcoins, perhaps it is nothing to do with Ether. Many are being outperformed by Bitcoin, while even the outperformers are not doing so by as much as has been seen previously (note I have removed Solana for scale purposes, which is up 125% thus far this year, following being decimated by links to Sam Bankman-Fried and multiple projects fleeing the blockchain at the end of last year). 

In truth, this has just been a remarkable rise for Bitcoin from the depths of bear market pain. The rest of the market is not quite ready to forget the armageddon that was 2022, with many altcoins paring down over 90%. 

Ethereum wasn’t quite as bad, but still fell from an all-time high of nearly $5,000. The free money and stimulus packages of the pandemic are over. It is a different climate now, and it is proving more challenging to kick up hype for altcoins. 

The web3 narrative has faltered. NFTs have been crushed. There is no doubt that the narrative around ETH has been torn down. I have written about how institutional adoption will pare back in crypto, and how the sector’s reputation will take a long time to fix.

That is true for Bitcoin. Perhaps it rings even more true for ETH and altcoins, which have even more to do to regain investors’ trust. 

The post Why is Ethereum being outperformed by Bitcoin? Historical pattern changing in 2023 appeared first on CoinJournal.

Opportunity, or trap? Glassnode on Bitcoin price outlook

  • Bitcoin’s rally from December lows after the FTX collapse surprised many investors, Glassnode says in its weekly report.
  • Bitcoin could see further upside but a fresh buy signal is likely at prices around $28.3k.
  • Selling pressure above $23.3k is more likely given short-term holders and miner push for exit liquidity.

Bitcoin price remains poised near $23,000 after a breakout pushed the leading cryptocurrency’s value above the psychological $20k level.

As highlighted ove the weekend, Bitcoin’s surge to prices above $23,000 did surprise many people, and while optimism is high among bulls, a potential liquidity exit from profit booking is likely. Particularly, this could be the outlook given how brutal the 2022 bear market was for short term holders and miners.

On-chain data platform Glassnode has highlighted this possibility.

Glassnode’s outlook after latest BTC price action

According to on-chain data firm Glassnode, Bitcoin looks “almost out of the woods,” but the price action to levels in the $21k to $23k region also reclaimed several on-chain pricing models.

A look at the Investor Price (currently at $17.4k) and Delta Price ($11.4k), signifies a similar price action at the bear market bottom of 2018-2019. Investor Price is the average price at which investors acquired all the spent and miner distributed coins, while Delta Price is derived from Realized Cap minus Bitcoin’s all-time Average Cap to get a technical pricing model.

At the base of this outlook is the price discovery phase, which during that 2018 bear market bottom lasted 78 days. The current market is at a similar level, with BTC above the Realized Price of $19.7k.

This suggests an equivalency in durational pain across the darkest phase of both bear markets,” Glassnode wrote in its weekly market report.

Still on the Investor Price/Delta Price metrics, the on-chain platform points to a measure called compression, which takes into account the spot price to determine the intensity of the market’s undervaluation.  The metric also correlates with the scale of change in an asset’s Realized Cap or capital inflow volume, with a threshold zone of 0.15-0.2.

Given the current BTC price and compression value, Glassnode estimates a bullish confirmation signal could be triggered if Bitcoin bulls reclaim $28.3k.

More optimism for bulls

Also helping the bull case is the Supply in Profit measure, which spiked 12% in the last two weeks to rise from 55% to 67%. The spike in percent of coins in profit is “the sharpest” of all prior bear markets, suggesting a lot more coins changed hands below the $23.3k level.

Key to bulls’ case is also the fact that Bitcoin price at current levels is above all the three cost basis of long-term holder, short-term holder and BTC Realized Price. This is the first time spot price has pierced the three Realized Prices and sustained momentum above the levels would be positive.

A bull trap case

While Glassnode points to potential bull case scenarios, its report also highlights probable cases of fresh sell-off pressure.

According to the on-chain data report, one of these is the “substantial spike in profitability,” which the platform says raises the possibility of selling pressure triggered by short-term holders. 

Miners are also likely to be motivated by the price action and might look to liquidate some of their holdings, adding to a potential retreat for BTC price.

The post Opportunity, or trap? Glassnode on Bitcoin price outlook appeared first on CoinJournal.

Bankrupt BlockFi plans to sell $160M Bitcoin mining hardware loans

  • BlockFi filed for Chapter 11 bankruptcy in November 2022 citing exposure to the just collapsed FTX.
  • The plan to sell off the loans backed by Bitcoin mining machines is part of the bankruptcy proceedings.
  • Bidders have until before the end of January to submit offers.

About two months after BlockFi filed for Chapter 11 bankruptcy, the crypto lender now plans to sell off $160 million in loans backed by Bitcoin mining hardware as part of the bankruptcy legal proceedings. In total, the loans are backed by about 68,000 Bitcoin mining machines

Although BlockFi cited FTX’s exposure as the main reason for its bankruptcy, the crypto lender had announced cutting its workforce by 20% in June 2022 citing the crypto prices meltdown. The layoff announcement came days after reports emerged that the lender was in talks to raise funding at a $5 billion valuation.

Bidders have until January 24 to send offers

According to reports from Bloomberg, BlockFi started the process of selling off the Bitcoin mining hardware-backed loans last year. It is believed some of the said loans have already defaulted since then and are candidates for under-collateralization following the drastic decline in the prices of Bitcoin mining hardware.

In an interview with one popular media outlet, crypto lawyer Harrison Dell who is a director at Australian law firm Cadena Legal said that the loans are not worth their paper value to BlockFi if the Bitcoin mining equipment used as collateral is worth less than the value of the loans.

According to Harrison Dell, the people bidding for the loans are most likely debt collection businesses saying that selling the debts is all that BlockFi can do at the moment.

It is believed that BlockFi’s attempt to sell off its loans is likely a part of the lender’s efforts to pay off its creditors who are about 100,000 in total.

The post Bankrupt BlockFi plans to sell $160M Bitcoin mining hardware loans appeared first on CoinJournal.

Bitcoin’s “hedge” narrative is dead, as speculative price action continues

Key Takeaways

  • Crypto has risen to start the year off the back of expectations that interest rates may be cut sooner than anticipated
  • This contrasts with the view that crypto is uncorrelated, proving it false
  • Assessing the price action of crypto through the pandemic and subsequent rate-raising cycle shows an extremely risky asset class that moves in line with other speculative asset classes

Over the last couple of months, markets have turned green off the back of inflation data softening around the globe. Crypto hasn’t been left off the invite list, with digital assets surging to their strongest rally in 9 months.

If there was ever any doubt (and by now, there really shouldn’t be), this proves once and for all that any narrative around crypto being an uncorrelated asset is dead.

Pandemic bull run

To quickly recap on the last few years in cryptoland, the asset class initially moved violently upward as central banks worldwide pursued ultra-low interest rate policy.

As economies ground to a halt for the ultimate black swan, the COVID-19 pandemic, nations faced a highly uncertain outlook in Q1 of 2020. With lockdowns sweeping the world, central banks were forced to do what they could to stimulate these abruptly-shut societies. 

Out came stimulus packages of an unprecedented scale. 

With all this stimulus and generationally cheap money, risk assets went bananas. The biggest leader of all was cryptocurrency. Some argued that the assets were rising as a result of the inevitable inflation that would result from all this expansionary monetary policy, as crypto was a hedge against the fiat system. The argument wouldn’t hold.

The transition to a new interest rate paradigm

The year 2022 did indeed bring a spike in inflation, and this time central banks were forced to do the opposite – aggressively hike rates as the cost of living spiralled relentlessly.

This has reined in risk assets, as per the playbook. Liquidity is sucked out of the system, suppressing demand. Investors now have alternate vehicles in which to park their wealth and earn a yield, with government-guaranteed T-bills now offering reasonable alternatives, as opposed to the zero rates previously (or negative in some nations).

But cryptocurrency followed the rest of the world’s risk assets down. Not only that, but the scale of the meltdown in the sector was unlike anything we have seen in a major asset class in a long time. Bitcoin shaved over three-quarters of its market cap, and it came out favourably compared to altcoins, many of which were decimated.

And now, the last couple of months have brought more optimistic readings regarding inflation. The numbers are still scary, but just a little bit of positivity has crept in that the worst may have passed. Of course, there is still a war ongoing in Europe and now fear has elevated that a recession may be imminent (if not here already), but hey – let’s celebrate whatever wins we can.  

The stock market has cautiously crept upwards, as the market moves to the expectation that high interest rates will cease sooner than previously expected.

The only thing is, crypto has also risen. Not only that, but it has printed gains which blow the moves in equity markets out of the water.

Which, you know, kind of suggests that this may not be an inflation hedge at all. As inflation comes back down and the likelihood of lower rates and another expansionary period grows, crypto rises. Go figure.

Correlation vs stock market remains high

The proof is in the pudding. It is pretty clear by simply looking at the price chart of S&P 500 vs Bitcoin that the correlation here is stark – with the key lurking variable being interest rates. 

Quite literally, crypto is the opposite of an uncorrelated asset – it has moved in lockstep with the stock market for the last few years. 

Interestingly, there have been periods of decoupling, however. Unfortunately, they have come amid crypto-specific crashes. To show this, I plotted the Bitcoin/S&P 500 correlation against the Bitcoin price over the last couple of years. 

The correlation has been high, aside from a few noticeable periods – all occurring when the Bitcoin price plummeted. The most recent example was November 2022, when crypto wobbled amid the FTX crash

There really is no debate here. Crypto is a highly correlated, extreme-risk asset. The only question is whether it can shed this moniker in the long term. But any thought contesting that it is not currently wildly speculative is wide of the mark.

The post Bitcoin’s “hedge” narrative is dead, as speculative price action continues appeared first on CoinJournal.

Bitcoin hits 5-month high as bulls push BTC above $23K

  • Bitcoin hit highs of $23,342 on Binance, with a breakout above $22k extending year-to-date gains.
  • BTC price is up 30% in a month and has recovered 47% since the decline to $15,500 lows.
  • Short liquidations were around $376 million in the past 24 hours.

Bitcoin price roared to highs above $23,000 on Saturday morning, rising to $23,342 on Binance as the price of the world’s largest cryptocurrency by market cap hit levels last seen in mid-August 2022.

BTC was changing hands around $22,900 at the time of writing, about 9% up in the past 24 hours after shedding some of the gains. 

The price of Bitcoin was, however, still 35% up in the past 30 days, and as crypto trader and analyst Rekt Capital pointed out earlier this morning, BTC had rallied over 47% since falling to lows of $15,500 amid the FTX dump.

Bitcoin price chart showing BTC rally to $23,000 on 21 January, 2023. Source: TradingView

 On-chain data platform Santiment noted just before today’s break above $23k that Bitcoin’s price rally has come amid a bullish outlook from large BTC investors. As the firm highlights in the chart below, whale addresses with 1,000 to 10,000 BTC have in the past two weeks accumulated over 64,638 bitcoins worth more than $1.46 billion.

Over $376 million in shorts liquidated

As Bitcoin raced to highs near $23,350, liquidation data showed that in the past 24 hours, about 80,497 traders had been liquidated.

According to Coinglass, the largest short liquidation was on Bitmex where an order worth $4.53million was rekt. The total liquidations as of 06:10 am ET on 21 January were $376.61 million. 

Notably, total liquidations are not at the levels seen when BTC/USD broke above $20,000 last week towards erasing all post-FTX losses. Nonetheless, it still shows some traders are convinced this could be a gigantic bull trap. 

But as it is, further upside momentum could see bulls target $25,000 or possibly higher if sentiment across risk markets helps bouy buy pressure.

The post Bitcoin hits 5-month high as bulls push BTC above $23K appeared first on CoinJournal.

Bitcoin’s recovery will depend on a lot of macro-activities affecting the market, says Dan Ashmore

  • Coinjournal’s Dan Ashmore says numerous factors, including inflation and rate hikes, have affected the prices of most cryptocurrencies.

  • He told CNBC that Bitcoin’s recovery would depend on numerous macro events affecting the market.

  • Bitcoin and the broader crypto market have lost more than 65% of their value since the all-time high of November 2021.

Bitcoin’s recovery will not happen overnight

Dan Ashmore, a cryptocurrency analyst at Coinjournal, told CNBC in a recent interview that the price recovery of cryptocurrencies will not happen overnight. When commenting about the price collapse last year, Ashmore said;

“Entering 2022, we were at the tail-end of one of the longest and most explosive Bull Runs in recent memory. And then the world is gripped by this inflation crisis post-pandemic. We also experienced one of the swiftest rate hike cycles in recent memories. That sucked the liquidity out of all these risky assets. It is not overly surprising that we have seen this massive pullback.”

The macro climate will play a role in market recovery 

At press time, the price of Bitcoin stands at $21,163, down by more than 60% from the all-time high. While commenting on the possibility of price recovery, Ashmore said the macro climate would play a huge role in that regard. He said;

“In the last month or so, we have seen slightly more positive readings. It still has a long way to go, but it is brighter than it looked a month or two ago. We still have a long way to go before we get back to that $69,000 all-time high. This is not going to be an overnight process.”

He added that the rise depends on a whole range of variables in the macro climate going our way. Furthermore, the avoidance of incidents such as the LUNA, FTX, and Celsius crashes could help boost the market in the long term.

The post Bitcoin’s recovery will depend on a lot of macro-activities affecting the market, says Dan Ashmore appeared first on CoinJournal.