Bitcoin surges above $10,000, hitting a two-month high! What happened?

After experiencing a series of increases since the end of last month, Bitcoin has finally regained the $10,000 mark!

On Friday morning Beijing time, the spot price of Bitcoin on Bitstamp and other exchanges rose above $10,000, reaching a new high since February 24 this year. Previously, in less than two hours, Bitcoin broke through several hundred-digit integer barriers from $9,500.

This also caused the price of Bitcoin to rise by nearly 50% in less than 20 days. Since April 21, the cumulative increase in the price of Bitcoin has reached 47%.

CME Bitcoin futures contracts rose above $10,000 during intraday trading on Thursday, with the maximum intraday increase exceeding 7%, closing slightly above $10,000, the highest since February 19 this year. After the market closed, it once rose above $10,200.

what happened?

It is worth noting that during this wave of Bitcoin's rise, media reported that in the recently released market outlook report "The Great Monetary Inflation", legendary macro investor and one of Wall Street's most successful hedge fund managers Paul Tudor Jones publicly stated that buying Bitcoin can be used to hedge against the fiat currency inflation caused by global central banks printing money.

In his article, he believes that investing in Bitcoin to hedge against this inflation is like buying gold to hedge against inflation in the 1970s.

Jones revealed that his fund Tudor BVI holds less than 10% of its investment in Bitcoin futures. The media believes that he has become one of the first big-name hedge fund managers on Wall Street to accept Bitcoin.

Jones estimates that since February this year, central banks around the world have printed a total of $3.9 trillion in response to the public health crisis, equivalent to 6.6% of global economic output. "We have witnessed a great monetary inflation, which is an unprecedented expansion of all forms of money, which is unprecedented in the developed world."

Jones is considering a variety of bets on gold, U.S. Treasuries, certain types of stocks, currencies and commodities during this unprecedented period of global monetary inflation.

According to Jones, he began to examine Bitcoin closely after considering the impact of the massive monetary stimulus and bond purchases by central banks to combat the impact of the public health incident. He wrote:

“I am not a firm believer in hard currency, nor am I a fan of cryptocurrencies. The most compelling argument for holding Bitcoin is that digital currency will become ubiquitous, and COVID-19 has accelerated this.”

According to media reports, Jones first got involved in Bitcoin in 2017 and liquidated his position at the end of the same year when the price of the currency approached a record high of US$20,000. Before the liquidation, his investment had doubled compared to when he first entered the market.

This time he said that he sees Bitcoin as a means of storing value, and believes that it has passed the test based on four major characteristics: purchasing power, credibility, liquidity and profitability. In the current hyperinflation environment, Jones believes:

“The best strategy to maximize profits is to own the fastest horse. If I had to predict, my bet would be on Bitcoin.”

Expectations of production cuts strengthen

In addition to Jones's views attracting great attention in the U.S. market, the role of expectations of production cuts behind Bitcoin's rapid rise is also difficult to ignore.

In fact, since the end of last year, the expectation of production cuts has become an important support for the price of Bitcoin. Including Bitcoin, at least 12 digital currencies will see production cuts this year.

Among them, whether from the perspective of currency price, market value or industry status, Bitcoin’s third production cut is what the market is most concerned about.

According to the historical data of the first two Bitcoin halvings, the price of Bitcoin will experience a significant increase within six months before and after the halving. In February this year, Bitcoin reached the important mark of $10,000, and the increase in the first month of the year exceeded 30%, which made the market full of expectations for the market after the halving.

But then, this expectation was disrupted by the black swan. When the global market suffered a heavy blow, Bitcoin was sold off as a risky asset, and fell below $5,000 in mid-March, halving from mid-February.

Currently, Bitcoin's computing power has recovered to more than 110EH/s, close to the level when the currency price reached its peak this year.

As the computing power of Bitcoin forked coins switches to Bitcoin after the production reduction; the flood season is approaching, the electricity price will be adjusted; and the high-computing power machines of Bitmain and Shenma Mining Machine will be put into use after the halving, all of which will be important factors affecting the computing power after the halving.

If the period of six months before the production cut (calculated as 180 days, excluding the day of the production cut) and six months after the production cut (calculated as 180 days, including the day of the production cut) is taken as a production cut effect cycle, then based on May 10 as the expected production cut date, the third production cut effect period of Bitcoin is from November 12, 2019 to November 6, 2020.

In the first six months of the third Bitcoin halving, the price of the currency fell, but the computing power of the entire network increased. The misaligned development of the two led to a decline in mining income and a squeeze on the mining industry. According to PAData's previous observations on Bitcoin mining, the relative changes in the price of the currency and the computing power of the entire network are a window into the mining industry's living environment.

According to PANews, judging from the historical relative changes in Bitcoin price and total network computing power, there are two types of correlations between price and total computing power. One is the same direction change, that is, when the price rises, the total network computing power also rises. This is also the most common correlation, such as in 2017 and 2019. On the contrary, when both the price and the total network computing power fall, it has only happened in history during the crash in March this year.

Another correlation is that the price of the coin and the total network computing power do not develop in the same direction, that is, one rises and the other falls at the same time. But assuming that miners are rational people and profit-seeking is the main motivation for mining, then when the price of the coin rises, the total network computing power is unlikely to fall. Conversely, when the price of a coin falls, the total network computing power may still rise, such as in 2018 and now. At this time, the driving force for the continued increase in the total network computing power may come from the expectation of future coin price increases. (Wall Street News)

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