Bitcoin is approaching $16,000. Can it replace gold and become mainstream?

1. Fundamental Analysis

1. Traditional financial institutions enter Bitcoin

The direct reason for the current rise in Bitcoin is the entry of a large number of traditional institutions. On the one hand, the total amount of Bitcoin is limited, at 21 million, and about 18 million have been mined so far; 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 by traditional institutions and the market enthusiasm they drive can easily push up the price of Bitcoin, resulting in an increase of up to 50% in one month. The following table summarizes the entry information of traditional institutions. In addition to the statistical information in the table below, it is not ruled out that there are many institutional giants that have entered the market in a low-key manner and have not yet been announced to the public.

So why are more and more traditional institutions starting to invest in Bitcoin? This year's macroeconomic environment is becoming increasingly severe. In 2020, global black swan events occurred frequently, the "pandemic" caused a global economic recession, and the excessive money issuance by central banks of various countries caused a low-interest market environment. Traditional economic theories cannot guide investment under the current situation. For example, according to the Merrill Lynch clock theory, investing in bonds under crisis conditions is a wise choice. But the reality is that investors have overweighted these bonds, with a nominal yield of zero and a negative real yield. And against the backdrop of a massive increase in government debt creation and debt monetization, more new debt and new funds will be generated, and continuing to hold these bonds is no longer worth the loss.

Therefore, emerging assets represented by Bitcoin have come into people's sight. Bitcoin was born during the 2008 financial crisis. Its core idea is to resist a country's large-scale over-issuance of currency. Bitcoin is being sought after by institutional investors, and its popularity even exceeds that of gold. According to JPMorgan Chase, Bitcoin is eroding the demand for gold ETFs, and family offices regard Bitcoin as a digital substitute for gold. Although it is generally believed that Bitcoin has high-risk characteristics, high risks are often accompanied by high returns - the price of Bitcoin has risen thousands of times in the past decade. In the case of uncertain global macroeconomic conditions, long-term negative interest rates in future market interest rates, and "money is worthless", people will prefer some high-risk and high-return alternative assets, so emerging assets such as Bitcoin have become one of the main choices for investors to allocate.

2. DeFi craze fades and funds turn to Bitcoin

In addition, the DeFi mining craze that lasted throughout the summer has subsided, and many funds have begun to withdraw from DeFi and enter other fields, such as Bitcoin. According to Coingecko, 55 currencies in the DeFi field have fallen in the past week. Due to the rise of Bitcoin, the total locked amount of DeFi in US dollars has not shown a significant decline, while the locked amount in BTC has fallen by 2.36%, and the locked amount in ETH has fallen by 7.23%.

As Michael Saylor, founder and CEO of MicroStrategy, said, "Bitcoin's global recognition, brand awareness, ecosystem vitality, network advantages, architectural resilience, technical practicality and community spirit are convincing evidence of Bitcoin's advantages as a long-term value storage asset class." Therefore, Bitcoin is also the first choice for investment in the circle. A lot of DeFi funds in the market have turned to Bitcoin. In the end, the price of Bitcoin has continued to rise in the past month, while many DeFi currencies have continued to fall, which is also an important factor affecting the price of Bitcoin.

3. The US election has little impact on Bitcoin prices

The quadrennial US election has attracted global attention, and the general election results will have a great impact on the financial market. Therefore, many people have discussed the impact of the election results on the cryptocurrency market, but I think the impact is minimal. At present, the cryptocurrency market has not been included in the mainstream financial market, and most institutional investors have not yet included cryptocurrencies in their asset allocation pools. The decisions of the traditional financial market will not affect the inflow or outflow of funds from the cryptocurrency market; on the other hand, the cryptocurrency market is still a niche market, and its total market value is less than the total market value of Apple's stock. Therefore, the impact of the US election results on the traditional financial market will not be passed on to the cryptocurrency market.

Even if the election results have little impact on the price of Bitcoin, in the long run, will the election results affect the US policy towards the cryptocurrency market? The Democratic Party is a left-wing party that emphasizes big government and therefore advocates strengthening financial supervision; while the Republican Party is a right-wing party that advocates small government, represents the interests of business owners, and advocates deregulation. The representative policy views of the two parties in the field of cryptocurrency in this election are as follows:

It can be seen that the Democratic camp emphasizes more on strengthening the regulation of cryptocurrencies, while the Republican camp is more open. Therefore, if the Democratic Party wins, the cryptocurrency market will be under certain regulatory pressure, which is not conducive to the rise of the cryptocurrency market in the short and medium term, but in the long run, a healthy and regulated market will promote the further development of the cryptocurrency market and will be included in the mainstream financial market, which is beneficial to the cryptocurrency market. If the Republican Party wins the election, the cryptocurrency market will be good in the short and medium term, but in the long run, if you want the mainstream financial market to accept cryptocurrencies, certain supervision is essential.

2. Technical Analysis

From the perspective of technical analysis, Bitcoin has entered a bull market, with an increase of more than 50% in the past month, and the RSI index exceeds 80, which is a typical bull market overbought state. On the daily line, since the beginning of October, when the MACD line (blue line in the figure below) crossed the signal line (red line in the figure below), 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 up, which led to the recent rise; the MACD line is still above the signal line, but the distance from the zero line is too far, indicating that the market is in an overbought state. If the MACD line weakens in the future, the market will pull back. From the RSI indicator, the current RSI has exceeded 80, indicating that the market is in an overbought state and there is a possibility of a pullback in the future.

The Elliott Wave Theory believes that each cycle consists of 5 rising waves and 3 falling waves. In this round of price cycle, the current market position is most likely to be in wave 3, which is the wave with the strongest increase. Therefore, the above indicators are all in an overbought state. Currently, wave 3 has not yet ended. If this wave develops well, after the correction of wave 4 and the rise of wave 5, it may reach the peak of this cycle; if this wave does not develop well, it may directly enter a downward trend.

3. Conclusion

After the analysis in the previous article, the bull market of Bitcoin this time is mainly attributed to the joint effect of funds outside the circle and funds inside the circle: the entry of institutional investors and the inflow of funds in the DeFi field. At the same time, the hotly debated US election has little impact on the price of Bitcoin. In today's macroeconomic context, Bitcoin is favored by institutional investors and even erodes the investment demand for gold, becoming an emerging investment tool. Technical analysis shows that Bitcoin is in the 3rd wave position of the Elliott Wave Theory cycle. If it develops well in the future, it may experience a short correction and then rise again, reaching the peak of this cycle; otherwise, it may directly enter a downward trend.