In recent weeks Bitcoin has managed to maintain its upward momentum. This surge can be attributed to a first-movers advantage dynamic, where the first approved ETF, if approved at all, gains a significant advantage by being the first to enter the market. Consequently, there’s also been a substantial influx of new ETF applications, regardless of whether they ultimately receive approval. This surge signifies a significant shift in the Wall Street Giants’ sentiment towards Bitcoin.
However, considering Bitcoin’s global nature as well as the presence of its markets, the stringent regulatory environment in the US can’t be ignored. Even if the current surge in ETFS presents similar regulatory challenges for the SEC, the sentiment toward Bitcoin is most certainly changing. The past week saw Bitcoin’s return correlation with the US dollar that trended from a moderate inverse correlation of -0.5.
In the early part of the year, to -0.1, indicating a weak relationship. This is similar to the trending decrease in correlations to US equity markets that we’ve observed, which highlights Bitcoin’s divergence from macroeconomic factors that it has been tied to for most of the post-Covid years.
This may signal the returning diversification potential of cryptocurrency. Despite the positive trends taking place, Bitcoin has still not managed to break through the $31,000 mark. Bitcoin’s recent surge where it reached $30,000 between June 18 and 21 raised concerns regarding the possibility that most of its gains had already been realised. The current Bitcoin price has remained stuck at $29,000 as the market waits for the Fed decision – which many analysts believe will be the catalyst for a breakout movement of the world’s oldest digital asset.
Inflation and rate concerns globally have played their part in suppressing crypto prices, the cause for concern is that the lower holding prices of Bitcoin appear to reinforce that there aren’t sufficient buyers willing to take new positions just yet. Additionally, the significant influence of Whales in the market has surpassed retail investors. Whales engaged in accumulation activities for approximately two months, gradually reducing their accumulation just before the surge in Bitcoin’s value. Consequently, we are now witnessing retail investors entering the market at its peak.
Another valuable indicator to consider is the Puell Multiple, which analyses the fundamentals of mining profitability and their impact on market cycles. The Puell Multiple is calculated by comparing the daily coin issuance (in USD) to the 365-day moving average of daily coin issuance (in USD).
Interpreting the Puell Multiple generally follows this framework. High values indicate that current miner profitability is above the yearly average. Consequently, there is a higher incentive for miners to liquidate their treasuries, leading to increased selling pressure. Low values suggest that current miner profitability is below the yearly average. This may create income stress, prompting some miners to reduce hash power by turning off rigs. As a result, the remaining miners increase their share of the hash rate and sell fewer coins to cover operational costs, reducing their impact on the liquid supply.
Since the start of 2023, there has been a consistent rise in the Puell Multiple. Miners generally exhibit a bullish stance and maintain long positions in the assets they mine. They often accumulate surplus coins in their treasury reserves, which they do not immediately sell to cover ongoing expenses. In favorable market conditions, the value of their treasuries grows, attracting new miners to enter the market and prompting existing miners to expand their operations. This dynamic creates a balancing effect and provides an incentive for miners to sell a portion of their treasury reserves to uphold their share of the network’s hash power.
In analysing market corrections, it is important to consider the prevailing uptrend that has persisted for a significant portion of this year. Within up-trending markets, corrections are a natural occurrence. During these periods, it is typically the short-term holders who exert a dominant influence, driving the price action.
While there are factors supporting positive bullish momentum, the increasing Puell Multiple trend and signs of seller exhaustion warrant attention. Further market volatility and movement in price may be necessary to activate spending from short-term holders, both those in profit and those in loss.
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