The Ultimate Rebound Machine
Longtime bitcoin (BTC) investors have historically been able to count on two core price dynamics:
- Bitcoin’s price (exchange rate) is often extremely volatile
- After big plunges bitcoin’s price will bounce back
True to historical form, bitcoin’s price has once again rebounded.
This week bitcoin reclaimed ~82% of its all-time high of ~$64k achieved in mid-April 2021.
While bitcoin’s climb above the $52k level on Monday did leave it short of making a new all-time high, the relatively quick reversal since the 20 July cycle low below $30k supports our view that the crypto bull market remains intact.
Crucially, each and every price rebound like the one just witnessed also strengthens confidence in crypto’s resiliency.
It. Just. Keeps. Coming. Back.
As more people a) come to understand that bitcoin is not going away and b) look with an open mind at how it compares with gold and fiat currencies, it becomes hard not to see its continued growth into a new global reserve currency as inevitable.
- Market Movements
- Bitcoin (BTC) saw a second consecutive positive monthly close for August +13% and rallied sharply at the start of Sept. as the first ever government (El Salvador) announced an investment in bitcoin
- Ethereum (ETH) was up +31% in August on the back of a resurgence in demand for non-fungible tokens (NFTs), while some ETH competitors such as Solana (SOL) saw even more impressive growth
- Key to the outlook for crypto markets over the next several months is whether fundamental demand drivers can sufficiently counterbalance growing regulatory uncertainty
2. On-Chain Analysis
- On-chain bitcoin activity reversed its multi-month decline streak with strong increases in both avg. daily number of transactions (+9%) and payments (+5%)
- Average daily bitcoin fees continued to drop from $4 / transaction to $2 / transaction month-over-month. The decline in average bitcoin fees has continued since May 2021
- Declining bitcoin transaction fees contrast with Ethereum “gas” (transaction) fees, which have remained high and have recently been averaging over $50/transaction
- We are skeptical that Chinese authorities were successful in eliminating all bitcoin mining in China
3. What we’re reading, hearing, and watching
1. Market Movements
Bitcoin saw a second consecutive positive monthly close for August, up +13% for the month. Ethereum was up an even more impressive +31% in August on the back of a resurgence in demand for non-fungible tokens (NFTs).
Equities (+3%) and the US dollar (+0.7%) were up for August (+2–4%), with long-dated US bonds (-0.5%) and gold (-0.2%) slightly down.
Table 1: Price Comparison: Bitcoin, Ethereum, Gold, US Equities, Long-dated US Treasuries, US Dollar (% Change)
As we discussed last month, government is arguably the last remaining major investor category missing from bitcoin’s incredible journey to becoming a new global reserve currency.
The launch of bitcoin as legal tender in El Salvador on Tuesday, alongside El Salvador becoming the first ever government to announce an investment in bitcoin, appears to have been a key catalyst behind BTC climbing back above $52,000 on Sept. 6th.
The flash crash crypto markets subsequently suffered on Tuesday Sept. 7th came as leveraged borrowing climbed and excessive exuberance returned to crypto futures markets, leading to rapid liquidation of speculative positions.
Looking ahead, perhaps the key question surrounding the outlook for crypto markets over the next several months is whether recent fundamental crypto demand drivers including:
- mainstream crypto adoption
- sustained growing interest in NFTs and DeFi
- more sovereigns following El Salvador’s lead in adding bitcoin as a reserve asset and legal tender
will counterbalance some uncertain regulatory developments around several key crypto growth categories:
2. On-Chain Analysis
Each month we dive into on-chain data to explore interesting trends or movements on the Bitcoin network.
Overall, on-chain activity increased in the month of August (Table 2).
The average daily fees continue to drop from $4 / transaction to $2 / transaction. This trend has continued since May 2021.
Table 2: August vs July network activity
One topic we continue to follow closely is the evolving bitcoin mining landscape in the wake of the May-June crypto mining crackdown in China.
It appears from anecdotal reports and official announcements that a very significant share of crypto mining previously conducted in China has either relocated outside China or gone offline.
However, we are skeptical of claims that Chinese authorities were successful in eliminating all bitcoin mining in China.
Indeed, we see evidence that some large mining pools thought to include a very significant share of China-based miners, such as AntPool, have seen their market share maintained or even increase of late in spite of China’s mining crackdown (Figure 1).
Some mining analysts have quietly estimated as much as 30% of the pre-crackdown ASICs (crypto mining computing hardware) to be still either operating in China or waiting to come back online after the Chinese regulatory heat has cooled.
Figure 1: AntPool has seen a market share increase despite China’s mining crackdown
3. What we’re reading, hearing, and watching.
- Bitcoin Magazine: IMF Issues New Warning Against Using Crypto Assets As National Currency
- Bitcoin Magazine: The Bitcoin Energy Debate Is A Modern Reprise Of The Gold Resource Cost Debate
- Block Digest Mempool: Defining and Discussing “Bitcoin Security”
- Bloomberg Opinion: 50 Years After Going Off Gold, the Dollar Must Go for Crypto
- Braiins: Economics of Bitcoin Mining with Solar Energy
- Cypherpunk Cogitations: Satoshi Roundtable VII Recap
- David Marcus: Good stablecoins, a protocol for money, and digital wallets: the formula to fix our broken payment system
- Paradigm: Two Rights Might Make A Wrong
- Samantha Messing: Why Progressives Should Love Bitcoin: An Open Letter to Senator Elizabeth Warren
- Sia and Skynet Blog: OnlyFans is a Microcosm of Everything Wrong with the Internet
- The Coinbase Blog: Around the Block #15: CryptoPunks, the NFT boom, and EIP-1559
- The New Yorker: Pumpers, Dumpers, and Shills: The Skycoin Saga
- Beyond The Valley: Why China’s cracking down on tech — and what’s next
- Continuing Ed — with Edward Snowden: The All-Seeing ‘i’: Apple Just Declared War on Your Privacy
- Electronic Frontier Foundation: Apple’s Plan to “Think Different” About Encryption Opens a Backdoor to Your Private Life
- Financial Times: George Soros: Investors in Xi’s China face a rude awakening
- Hoover Institution: Advance, Retreat, Resign
- Lukasz Rol: Using AirTags to detect stationary iPhones
- NPR: China’s Microsoft Hack May Have Had A Bigger Purpose Than Just Spying
- Project Syndicate: Back to the Seventies?
- Project Syndicate: The Promise of Open Financial Data
- Project Syndicate: The US and China Are Not Destined for War
- Slashdot: We Built a CSAM System Like Apple’s — the Tech is Dangerous
- Slashdot: Your Credit Score Should Be Based On Your Web History, IMF Says
- Tariq Fancy: The Secret Diary of a ‘Sustainable Investor’ — Part 1
- The Guardian: ‘The smartest person in any room anywhere’: in defence of Elon Musk, by Duglas Coupland
- The Intercept: A War’s Epitaph
- Vice: Leaked Document Says Google Fired Dozens of Employees for Data Misuse
- VoxEU: One-stop source for inflation: Introducing a new database