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$10K — The Bitcoin Price Streak Continues

October Market Outlook

Blockchain.com
@blockchain

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We love a good winning streak.

As we enter October and enjoy the baseball playoffs and upcoming World Series, we’re reminded of Joltin’ Joe DiMaggio’s 56-game hitting streak as we watch bitcoin continue on its current record-setting streak of days above the price of $10,000.

The great Yankee Clipper set a record considered unbreakable

At publication time bitcoin has been above the psychologically important $10k level for 77-days and counting. This well eclipses the prior record of 62 days in 2017, when bitcoin set its all-time price high of ~$19,000 in December 2017.

How long can bitcoin keep its current streak going?

As we discuss below, a number of people have previously incorrectly forecasted that bitcoin would never retreat below $10k and see 4-digit prices again.

However, at some point bitcoin must remain above $10k indefinitely to fulfill its promise of becoming a new, widely held global reserve asset. Read on for our thoughts.

Summary

  1. September Markets: Crypto, equities and gold all dropped as USD and long-dated Treasuries found support
  • For the month Bitcoin (BTC) and Ethereum (ETH) were down -8% and -16%, respectively, with Ethereum’s underperformance driven by a slackening in DeFi momentum.
  • Can September be characterized as “risk-off”? Equities and gold were also down -4% and -5%, respectively, whereas the US dollar finally caught a bid +2%.
  • According to Blockchain.com Chief Strategy Officer and Head of Markets, Charles McGarraugh, the September down leg in gold and bitcoin was driven by a softening in the inflation story that has been driving outperformance, which needs more data confirmation.
  • Charlie expects additional confirmation of rising inflation in 2021, which he also feels could break the strong correlation observed this year between stocks and crypto.
  • Bitcoin is on a record setting streak of 77 days and counting above $10k; bitcoin’s price will at some point need to remain well above this level if it is to become a widely held global reserve asset.

2. On-chain insights: Highlights from the Blockchain.com data science team

  • Steady bitcoin network activity observed despite a decrease in market capitalization.
  • The high level of output volume seen in the recent weeks, due to a single entity, shows how important it is to fully understand metrics and the mechanics of bitcoin transactions.
  • Europe is the most active continent in our web wallet; Africa’s activity share increased steadily by 5% but seems to have stabilized; North America is the most active on per internet user (per capita) basis.

3. What we’re reading, hearing, watching

1. September “risk-off”? Crypto, equities and gold all dropped as USD and long-dated Treasuries found support

DeFi mania cooled in September with Ethereum (ETH) dropping -16% for the month, and many altcoins suffering even bigger drops.

While bitcoin (BTC) fared better it was still down (-8%), as was gold (-5%) and equities with the S&P 500 -4%. In contrast, the US dollar (+2%) caught a bid for the first time since the coronavirus shock in March, and long-dated US Treasuries were up modestly (+1%) (Table 1).

Table 1: Price Comparison: Bitcoin, Ethereum, Gold, US Equities, Long-dated US Treasuries, US Dollar (% Change)

Sources: Blockchain.com, Google Finance

Should there be concern over the strong correlation between crypto and equities?

Bitcoin and crypto have traditionally been uncorrelated with other major asset classes, such as equities. This uncorrelated nature has been a major selling point in the argument that investor portfolios would be well served by adding even a small quantity of crypto.

Over the last several months a concern has emerged that crypto is correlating too closely with stocks and now behaving more like “digital equities” than “digital gold”.

Is the strong correlation between crypto and equities (especially tech stocks) the new normal (Figure 1)? Or are there reasons to believe that crypto will once again return to being uncorrelated with equities and other asset classes?

Figure 1: Since the start of 2020 crypto has been strongly correlated with equities

As argued on our October monthly webinar by Blockchain.com Chief Strategy Officer and Head of Markets, Charlie McGarraugh:

a) crypto is not just a risk-on tech equity and differs fundamentally from the current dominant, centralized technology companies.

b) a major break higher in price inflation could break the current equities-bitcoin correlation.

In Charlie’s view the September down leg in gold and bitcoin is more about the inflation story that has been driving their outperformance over the past few months (eg gapping higher in July) needing more data confirmation (Figure 2). Looking ahead to the post-November US election period, there are good reasons to expect the US will engage in significant fiscal expansion that, combined with easy monetary policy, is likely to lead to increased price inflation.

Figure 2: Bitcoin, Silver, and 10y Inflation Swaps, YTD

Source: Bloomberg

Bitcoin above $10k forever?

Through September and into early October bitcoin has now set a record for its longest daily streak above $10k. As we are about to publish bitcoin’s remained above this psychologically important level for 77 days and counting.

Figure 2: Bitcoin has broken the 2017 record consecutive days above $10k and is now at 77 days >$10k

Why is $10k significant? Is this five-figure number somehow special, or just arbitrary?

Part of the answer in the significance of $10k lies in human nature and our comfort with round numbers (and especially 10-base numbers).

In other words, the significance of $10k is driven by market psychology. It is important because enough other people have mentally chosen to make it important. And market psychology is particularly important for assets such as bitcoin that currently lack a robust method of valuation.

Will bitcoin stay above $10k indefinitely?

Forecasting crypto prices is hard. Earlier this year in spring we saw a number of prominent people in crypto claim that bitcoin would soon pass 4-digit prices “forever” and be promptly proven wrong.

Whether bitcoin can remain above $10k forever remains to be seen, but in our view one of the strongest reasons to believe bitcoin may have permanently cleared the $10k hurdles is the fact that publicly traded entities are increasingly allocating portions of their treasury reserve assets to bitcoin.

As we publish we just learned that Square, led by bitcoin supporter and Twitter CEO Jack Dorsey, announced that it had joined the “bitcoin balance sheet club” with its purchase of 4,709 bitcoins (~$50m).

Ultimately, for bitcoin to fulfill its promise as a widely held global reserve asset it must at some point remain above $10k indefinitely.

At current prices bitcoin’s total market value is approximately ~$200 billion, which while significant is still well below the trillions of value respectively stored in gold, sovereign bond markets, and major reserve currencies.

To become a truly global reserve asset bitcoin will need to not only remain above $10k indefinitely, but will likely need to reliably hold a value in excess of $100k per coin, equating to a total market value well in excess of $1 trillion. Continued institutional and corporate adoption are arguably one of the most important indications that this valuation level can one day be achieved.

2. On-Chain Analysis

Each month we dive into on-chain data to explore interesting trends or movements on the Bitcoin network.

Looking at high level metrics, the main notable change is the decrease in market cap due to a drop in price in early September. We are seeing similar network activities as in August, nevertheless, there was a slight increase in daily payments and transactions, driven by Blockchain.com users.

Table 2: Bitcoin network activity — September vs August

Source: Blockchain.com

A strange spike in output volume explained

While looking at our Charts, a significant change in output volume caught our attention (Figure 3). After investigation, this increase turned out to be caused by a single hot wallet address moving the same funds around to consolidate and send bitcoin. Since May, it has sent and received around 90M BTC (~831billion USD), however most of those funds stayed within the same wallet. Our estimated volume chart, which aims at excluding the change in the volume to provide a better idea of the actual volume being sent, does not show this increase in volume.

This way of reusing the same address with a lot of funds in it is not without any risks. While security protocols such as multisignature and multi factor authentications are most likely in place, it becomes an obvious target for hackers. Some will remember when a hacker managed to steal 7000 BTC off Binance, who also uses a single hot wallet address, on May 7th 2019. From the Top 100 Rich List provided by BitInfoCharts, there are only two addresses that have sent more than 5000 transactions: Binance and this relatively recent address.

According to a few sources, this address belongs to the Ren Project, an open protocol providing access to inter-blockchain liquidity for all decentralized applications.

Figure 3: Recent increase in bitcoin daily output volume

Trending countries and continent

In the recent months we’ve seen interesting trends like Ecuador and Japan that increase their active visits in comparison to other countries, or Nigeria whose activity almost doubled in a few months, even if its activity has recently decreased.

We take a deeper look at the continent level (Figure 4a). Notably, from April to July, European activity has steadily decreased from 42% to 33%, in favor of an increase of 6% in African countries. In the last two months, trends seem to have stabilized. Europe remains the most active country in our web wallet, in front of Africa and North America. Continents have different populations and access to the internet; so we show how much an internet user interacts with our web wallet in comparison to other continents in Figure 4b with active web visits per continent per internet population. Asian users appear to be the least enthusiastic while North American is the continent where internet users are the most active in our wallet.

Figure 4a: Active web visits per continent

Figure 4b: Active web visits per continent per internet population

3. What we’re reading, hearing and watching

Crypto

Beyond Crypto

Important note

The research provided herein is for your general information and use and is not intended to address your particular requirements.

In particular, the information does not constitute any form of advice or recommendation by Blockchain.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.

Appropriate independent advice should be obtained before making any such decision.

Footnotes:

  1. Average daily number of confirmed transactions in the public blockchain
  2. Average daily number of confirmed transactions sent from our Blockchain Wallet and API
  3. Average daily number of unique addresses used as inputs and outputs in the confirmed transactions
  4. Average daily number of estimated payments in the public
  5. Based on a subset of our wallet users. The top 10 excludes countries with fewer than 0.3% of total number of transactions

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Blockchain.com
@blockchain

Written by Blockchain.com

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