Reviewing Market Predictions After the BTC Crash on August 17 and Looking Forward to Future Trends

[TL；DR]

There are many fundamental aspects of Bitcoin, such as spot Bitcoin ETF applications, halving in April next year, and the Federal Reserve’s interest rate resolution. However, Bitcoin’s mining cost price is more widely accepted by the market.

The crypto market, which has improved fundamentals, has not yet received ample financial support. Due to the volatility and insufficient profit making effect of the crypto market this year, coupled with the inverted relationship between cryptocurrency interest rates and US bond interest rates, market liquidity has been tightening.

Since the bear market last year, the crypto market has not yet shaken off its bearish mentality. However, due to the low volatility, liquidity, trading volume, and other factors, the coin price has neither the fundamental impact of a sharp decline nor the power to sustain an upward trend.

Introduction

Since the last article, it has been more than 20 days. After the coin price quickly recovers to a new low, how should we look forward to the future market of Bitcoin? Here, we will review the analysis ideas of the old article and make a new outlook on the latest technology and fundamentals.

The Goal of Bitcoin Adjustment

Bitcoin suddenly fell on the evening of September 11th, dropping as low as $24,901 (Gate.io price). Technically, it approached the sharp drop low of August 17th, forming a downward trend in a volatile range and a downward trend. However, the next day, the coin price quickly rebounded and rose, forming a standard bullish and bullish trend.

In fact, the author pointed out in the article How Will the Market Evolve After the BTC Crash on August 17? that the daily decline that occurred on August 17 does not seem to be out of the ordinary. On the one hand, the decline did not reach the standard bull market drop of over 20%, and on the other hand, the “draw sword from the scab” pattern may indicate that prices still need to continue to explore and seek support. The trend in recent days has to some extent echoed our previous forward-looking expectations.

Source from: Gate.io

In fact, on the evening of August 29th, the Grayscale win over the SEC lawsuit case once triggered a strong rebound in coin prices, but unfortunately this positive sentiment did not last long. By the 31st, it was revealed that the US SEC had delayed the application of spot Bitcoin ETFs, and the heat quickly cooled down, causing coin prices to quickly fall back to their original shock range.

These two pieces of news have both had a short-term push on the token price, but their sustainability is relatively weak, which also reflects the lack of momentum for significant market fluctuations and the need for further consolidation and accumulation.

Strong Fundamentals and Sluggish Funding

There are many fundamental aspects of Bitcoin, such as spot Bitcoin ETF applications, halving in April next year, and the Federal Reserve’s interest rate resolution. However, Bitcoin’s mining cost price is more widely accepted by the market.

Generally speaking, in the long run, Bitcoin prices and production costs will follow suit through market mechanisms, because when there is a gap between prices and costs, it will cause miners to join/exit the market, leading to price and cost convergence. From a historical perspective, the lower limit of Bitcoin prices is the miners’ shutdown price, and the current price is already very close to the shutdown price, providing strong support from a fundamental perspective.

We can estimate the average cost per Bitcoin produced by all miners based on the global Bitcoin “electricity consumption” and “daily number of new issues” provided by the University of Cambridge.

As shown in the figure below, the total mining cost per Bitcoin on September 12th was $29,686, which is approximately 14.87% higher than the current coin price.

Source from: MacroMicro.me

We can also refer to Glassnode’s Bitcoin: Diversity Regression Model, which shows that the average cost price of miners is around $23,317.

This indicator considers the difficulty of Bitcoin mining as the ultimate refinement of the mining ‘price’, using a single number to explain all mining variables. Therefore, this value reflects the average production cost of BTC in the mining industry, without the need to consider mining equipment, power costs, and other logistics factors in detail.

Source from: glassnode.com

Although there is currently no very accurate statistical method to reasonably uate the mining cost area of Bitcoin, from the many information obtained, the current price of Bitcoin is indeed very close to the mining price of miners. In addition, with the upcoming halving next year and the possibility of a US dollar interest rate cut, the fundamentals of Bitcoin are becoming increasingly strong.

On the other hand, the crypto market, which has improved fundamentals, has not yet received ample financial support. Due to the volatility of the crypto market this year, the profitability effect is insufficient, and the inverted relationship between cryptocurrency interest rates and US bond interest rates, market liquidity has been tightening.

Source from: glassnode.com

As shown in the above figure, since the beginning of this year, the liquidity, volatility, and trading volume of the entire digital asset market have continued to compress, with many indicators falling back to levels before the 2020 bull market. Except for Tether (USDT), all major stablecoin assets are retreating, and the supply of stablecoin is experiencing a continuous decline.

This can be seen as the hesitant wait-and-see mentality of short-term holders in the early stages of the bear to bull transition, but it also reflects the opportunity costs of higher interest rates, which have not been passed on to low interest stable currencies.

What is to Come

Based on the comprehensive analysis of the entire text, it seems easy for us to understand the main thread of the current market. Since the bear market last year, the crypto market has not yet broken away from the bear market mentality, but due to the low volatility, liquidity, trading volume, and other factors, the token price has neither the fundamental impact of a sharp decline nor the power to sustain an upward trend.

However, this does not mean that there are no investment opportunities in the market, as from a macro perspective, fundamentals are the most fundamental influencing factor, especially as Bitcoin, as an increasingly mature asset, its improvement in fundamentals will also trigger a bullish outlook on funding.

At the time of writing this article, we saw that on the evening of September 13th, the US August CPI rebounded by 3.7% year-on-year. However, the response of Bitcoin prices to this bearish news was only a slight pullback, which actually indicates that Bitcoin has a marginal decreasing response to the Federal Reserve’s policy expectations.

Source from: Gate.io

Of course, the important thing is not a conclusion that is either too much or too little, but rather the need to respect the market, follow trends, and do a good job in DYOR. We will continue to keep an eye on the future market and bring you more valuable market insights.