For Long Term Bitcoin Investors, Patience is Crucial
Bitcoin Market Update - July 7, 2021
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The market continues to look...
The market has been largely mixed and indecisive over the past few days and weeks. On Tuesday morning, we saw a steep sell-off to $28.8K followed by a steep recovery up to $34K. That market event, like others that preceded it, presented an opportunity for well positioned Long Term Holders (LTHers) to pick up discounted Bitcoin from capitulating Short Term Holders (STHers).
China’s Bitcoin mining ban is being reflected in a downturn in the network hashrate. It appears this is a real ban on mining and there are indications it is due to a crackdown on corruption by regional CCP officials found to be allocating energy grid power to miners. China has worked extensively to centralize control of their energy grid to better plan power delivery to high population centers. Most energy produced in China are in far-flung central provinces, not where the major population centers along the eastern and south eastern coasts like Beijing, Guangzhou, Shanghai, Shenzen, Tianjin and several others.
I expect the indecisiveness to continue for a period of time as the market digests the China ban.
Here’s my take:
The China ban on mining is short term bearish. We saw the price spike down early Tuesday morning as western news outlets carried the story.
The China ban on mining is long term bullish. A historical 60% of hashrate in China has been a long term issue in the Bitcoin community’s desire to maintain decentralization. Mining equipment is hitting the market with Bitmain, the largest manufacturer, hosting a conference between their largest clients and American mining businesses. Texas Governor Greg Abbott attended to welcome the attendees.
Ultimately, it’s an unfortunate development for the people of China, but not unexpected behavior from the totalitarian nature of the CCP. Bitcoin is a technology that promotes freedom from the trappings of monetary surveillance, the CCP has demonstrated time and again its willingness to restrict any perceived threats to its own power structure.
Now, onto the market:
Tuesday was a high volume day, lots of coins moving from STHers to LTHers..
We saw a V-shaped recovery which is a pretty good indicator of a local bottom. Could it be that sellers sold on the bearish China news while buyers bought on the bullish China news? We’ll need a few days and weeks to see how this plays out.
On-chain activity is at lows not seen since earlier this year, it's quiet on the blockchain.
Bitcoin dominance is up from 39% to 46%. Bitcoin dominance is the percentage of the total value in Bitcoin vs. all other cryptocurrencies combined. I’m not a big fan of this metric as it implies that all cryptocurrencies are the same. Cryptocurrencies fall into to several categories - Bitcoin stands unique as the only decentralized monetary network, while the others address particular use cases. That said, Bitcoin dominance increasing indicates that value has either moved out of altcoins into USD or into Bitcoin.
The longer Bitcoin consolidates in this price range, the better it will be positioned to drive stronger upside momentum later in the cycle. The reason is simple, Bitcoin has both a finite supply and a finite rate of new supply as the price goes up. Those investors that doubted, capitulated and have lesser conviction on their altcoin investments start to fear missing out (FOMO). As they FOMO back in, price continues to rise which creates continual FOMO at the same time the supply is being further reduced.
One indication this is starting to happen is Ethereum is losing value against Bitcoin. Put another way, investing US dollars in Bitcoin has been a better performing strategy over the past couple of weeks. We’ve seen this metric develop later in the 2017 cycle, I believe it’s due to a couple of reasons:
There is a lots of indecisiveness but also indications of capital inflow from other coins.
The next few days and weeks will be crucial towards establishing a market direction, but if the current on-chain patterns and trends continue, I’d expect a continuation of the bull market.
Leave any questions, thoughts and comments below!
Omar Sabek is a Bitcoin expert and CEO of Sasco Digital Assets. Before founding Sasco Digital, Omar served as Head of Global Services for one of the world's largest banking communications companies, IPC. Omar has been a consistent voice in the Bitcoin community since 2012. As a technology security expert with a deep background in banking and finance, Omar has applied his knowledge and experience to mastering every aspect of Bitcoin including its performance history, best security practices, investment strategies, and more. Omar is passionate about educating people. With a long term vision of making Bitcoin accessible to all, the team at Sasco Digital is creating resources and practices that derisk Bitcoin investing and empower our clients.