Observation | What market signal does Bitcoin’s rise above $18,000 imply?

At 12:52 on November 18, data from Huobi Global Station showed that BTC rose in the short term and broke through the $18,400 mark. Subsequently, "Bitcoin stands at $18,000" quickly topped the Weibo hot search list. However, at 13:47, Bitcoin quickly fell below $17,400. At the same time, according to the statistics report of Hetongdi, the total liquidation of the contract market in the entire network within 30 minutes was $7.88 million, of which BTC liquidation was $7.81 million. However, as of press time, the price of Bitcoin has temporarily stabilized around $17,800.

According to the previous data, it took only a few days for the price of Bitcoin to break through $18,000. This breakthrough seems to be a big signal. Regarding the situation that Bitcoin just broke through $18,000 and then quickly fell below $17,500, with a liquidation of $7.81 million in 30 minutes, some commentators said that the big ups and downs are the main theme of the bull market. William, chief researcher of OKExResearch, commented that Bitcoin has risen by 70% in the past month, which is already a bull market.

It is worth noting that this morning, CCTV-2 (CCTV Finance Channel) reported that as of the afternoon of the 17th Greenwich Mean Time, that is, early this morning Beijing time, Bitcoin, the cryptocurrency with the highest market value, broke through $17,000 and reached $17,534, setting a new high this year. The price is the highest level since December 2017. Since entering the fourth quarter, Bitcoin has started a new round of market, rising by 70% in less than 50 days. Analysts believe that compared with 2017, the current Bitcoin network construction, development environment and investment ecology are no longer the same as before. If the momentum in 2017 came from retail investors in the market, then the rise in the second half of this year was driven by institutional funds.

William, chief researcher of OKExResearch, also analyzed and pointed out that the main force of this bull market of Bitcoin is traditional institutional investors. These institutional investors did not buy other currencies, and the rise of other currencies was not obvious.

From a fundamental perspective, the direct cause of this bull market is that a large number of traditional institutions have entered the Bitcoin market, bringing in a large amount of buying funds. On the one hand, the total amount of Bitcoin is capped, and the total amount produced so far is around 18 million. On the other hand, Bitcoin holdings are highly concentrated, and early miners and investors hold a large number of Bitcoins. Therefore, the actual number of Bitcoins in circulation in the market is not large. The huge amount of funds brought in by the entry of traditional institutions and the market enthusiasm they have driven can easily drive up the market price of Bitcoin.

The following table shows the entry information of traditional institutions based on public data. In addition, there must be many institutional giants that have entered the market in a low-key manner and have not yet announced it to the public.

As for why so many institutions have started to buy a large amount of Bitcoin this year, I also explained it last time. Although Bitcoin is still controversial, capital always pursues profits and increases value. In 2020, global black swan events occurred frequently. We are in a "pandemic" that has not been seen in a century and a low interest rate market environment caused by the excessive issuance of currency by central banks of various countries. Traditional economic theories cannot guide investment under the current situation.

For example, according to the Merrill Lynch clock theory, investing in bonds is a wise choice under crisis conditions. However, the actual situation is that investors have overweighted these bonds, with a nominal rate of return of zero and a negative real rate of return. In the context of an uncertain global macroeconomic situation, long-term negative market interest rates, and “money is worthless”, people will prefer some high-risk, high-return alternative assets, and investors allocating emerging assets such as Bitcoin has become one of the options.

In addition, William also pointed out from the analysis of technical indicators that on the daily line, since the MACD line (blue line in the figure below) crossed the signal line (red line in the figure below) upward in early October, a buy signal was issued and the market entered an upward channel; although the MACD line tried to cross the signal line around November 3, it eventually reversed and turned upward, which subsequently brought about the recent rise.

Currently, the MACD line is still above the signal line, but it is too far above the zero line, indicating that the market is overbought. Currently, the MACD line has flattened, and it is expected that the market will pull back in the near future.

Judging from the RSI indicator, the current RSI has exceeded 75, indicating that the market is in an overbought state and there is a possibility of a correction in the future.