With less than six months left until Bitcoin's mining reward is again cut in half, heralding a fierce deflationary wave in the process, the anticipation of sizable price gains is so thick that you can almost cut it with a knife. If past precedents hold true, Bitcoin should now be preparing for its legendary bull run; ergo, the buzz that has ensued since the world's apex cryptocurrency tagged the psychologically significant $30,000 price level.
Bitcoin's Benevolent Tailwinds
A number of conducive factors have aligned in recent days to create the ongoing bullish momentum around Bitcoin.
JEROME POWELL SIGNALS FED WILL EXTEND INTEREST-RATE PAUSE (WSJ)
Recent economic figures show ‘ongoing progress’ toward goals, U.S. central bank chair says pic.twitter.com/ABRnYFPcl7
— FXHedge (@Fxhedgers) October 20, 2023
On the macroeconomic front, following a persistently low initial unemployment claims print for September acting as a testament to the labor market's resilience, Fed Chairman Jerome Powell just conveyed his willingness to extend a pause in further interest rate hikes as the financial tightening that is already under the proverbial belt works its way through the US economy.
Why is the Fed's interest rate trajectory of interest to Bitcoin? As many of our regular readers would know by now, the world's premier cryptocurrency has a penchant for acting like a growth-focused tech stock, as evidenced by its periodic elevated correlation with the Nasdaq index. The reason: just as the case with a high-duration stock whose bullish thesis depends on expectations of future profits, a fundamental part of Bitcoin's ethos is derived from its hard-coded scarcity and the attendant expectations of future price gains. Of course, one can't do much with future cash flow expectations in finance. Hence, analysts try to compute the present value of such cash flows by using a discount rate derived from the Fed's benchmark interest rate. As a general rule, the higher the discount rate, the lower the present value of future cash flows.
Coinbase $COIN is confident that a
Bitcoin $BTC ETF will be approved by the US SEC, the company’s chief legal officer, Paul Grewal, told CNBC
“I’m quite hopeful that these [ETF] applications will be granted, if only because they should be granted under the law,”
— Evan (@StockMKTNewz) October 20, 2023
As far as intrinsic factors are concerned, Coinbase recently conveyed its optimism as to the odds around the launch of spot Bitcoin ETFs in the US. A spot Bitcoin ETF would make it extremely convenient for investors to acquire exposure to Bitcoin without the pitfalls associated with futures-based ETFs, where the contango-related roll-over losses chip away gains. As per an analysis by K33 Research, the launch of spot Bitcoin ETFs could attract around 100,000 BTC in fresh investments within months, corresponding to around $3 billion in new investment, as per the current prices.
Grayscale Investments filed a new registration statement with the SEC in its ongoing attempt to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF after a D.C. circuit court's ruling directing the regulator to re-review the firm's application. TheBlock…
— Wu Blockchain (@WuBlockchain) October 19, 2023
In a related development, Grayscale has now filed a registration statement with the SEC as it tries to convert its Bitcoin Trust into a spot ETF. This move speaks volumes as to Grayscale's confidence in a positive outcome for its efforts.
JUST IN:
— Watcher.Guru (@WatcherGuru) October 19, 2023
Concurrently, helped along by judicial reprimand, the SEC appears to be backtracking on its overarching anti-crypto stance. Consider the fact that the SEC has now dropped its lawsuit against Ripple. For those who might be unaware, the SEC had alleged that Ripple's XRP token was a security and that the company's periodic release of XRP via institutional and programmatic sales to fund its operations constituted a violation of the securities law. The court, however, had taken a dim view of the SEC's overly aggressive interpretation of the Howey Test - a criterion that is used to determine whether an economic transaction constitutes the sale/purchase of a security. The court noted in its non-binding judgment that the sale of the XRP token via exchanges can't be considered a security, clearing much of the regulatory fog around Bitcoin and Ethereum.
A Word of Caution
Bitcoin is ~180 days away from its Bitcoin Halving
At this point in the cycle, Bitcoin retraced -25% in 2015/2016 and -38% in 2019
History suggests a retrace is possible
A -30% retrace from current prices would see Bitcoin drop to ~$20,000$BTC #Crypto #Bitcoin pic.twitter.com/B3ROO6FJEr
— Rekt Capital (@rektcapital) October 17, 2023
While Bitcoin's recent bout of strength is a welcome development for investors stuck in bear market purgatory, do note that the world's apex cryptocurrency can still retrace anywhere between 25 percent and 38 percent, should past precedents hold.
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