A 30% surge in 29 hours, has Bitcoin reached its turning point?

Source: Scallion Blockchain

After being entangled around $5,500 for more than a week, Bitcoin finally ushered in a long-awaited sharp rebound yesterday, and the market successfully completed the recapture of the 6,000 integer mark. Yesterday, Bitcoin also achieved the largest single-day increase in nearly five months since the surge at the end of October last year that quickly pushed the price of the currency from 7,000 to above 10,000. Today, the price of Bitcoin continued to rise, breaking through the 6,700 integer mark during the session. In the past two trading days, it has achieved a considerable increase of nearly 30%, constantly refreshing the new high point in the past week.

Over the past month, global public health and safety issues have led to the outbreak of a "crisis" that had been warned but not really taken seriously. Almost all traditional assets, including stocks, bonds, foreign exchange, precious metals and commodities, have collapsed across the board. Bitcoin, once regarded as a new type of safe-haven asset, has not been able to buck the trend, but has followed risk assets such as US stocks to achieve highly synchronized market performance (see Xiaocong's previous article "Bitcoin's "positioning" has become clearer in the context of a chaotic market"). As major economies around the world have urgently introduced radical and loose stimulus policies, the panic in the financial market has further fermented. Therefore, so far, traditional major assets have not shown clear signs of stopping the decline and reversing, which undoubtedly makes the prospects of Bitcoin, which has hit a new low in nearly a year, even bleaker.

However, the rebound in the market yesterday greatly eased the market's concerns. As of the time of writing, Bitcoin continued to rise and once reached the level of 6,700 US dollars. The continued acceleration of the rise after a brief correction in the early trading undoubtedly further increased the confidence of the continuation of the rebound momentum. As other mainstream currencies also rebounded synchronously with Bitcoin, the cryptocurrency market finally seemed to have ushered in signs of restarting the "independent market" against the general environment.

William, chief researcher of OKEx Research, pointed out that when Bitcoin plummeted to $3,800 in mid-March, the price of Bitcoin was already significantly underestimated. This is a simple cost calculation. On the day when Bitcoin plummeted, the average shutdown price of a mining machine with a 7nm chip process was calculated to be around $3,000 based on an electricity fee of $0.05. If the current computing power remains unchanged, then when the halving occurs in May, the shutdown price of the mining machine will become around $6,000. What would happen if all Bitcoin mining machines were shut down? This means that Bitcoin transactions will stop and people will not be able to trade. Even if someone wants to sell Bitcoin, they cannot sell it, so this basically forms the "iron bottom" of Bitcoin. On the other hand, in recent days, as major central banks around the world further release liquidity, the financial market has also partially recovered, so part of the short-term rise in Bitcoin also comes from the normal returns of the beta strategy.

Willy Woo, the great man who first proposed the Bitcoin NVT valuation model, pointed out on Twitter yesterday that the positive correlation between Bitcoin and the S&P 500 index had become significantly blunted half a week ago, and the traditional safe-haven asset gold also temporarily got rid of the rare linkage performance of falling synchronously with the US stock market at the same time. With the S&P 500 index still continuing to fall rapidly, gold has shown a relatively strong double bottom expectation in recent trading days, while Bitcoin has shown a relatively classic shock rebound performance after stopping the decline, which has laid the groundwork for the bulls' massive counterattack.

In addition, Willy Woo also pointed out that some derivative indicators including SOPR and on-chain RSI have also expressed positive signals of the recovery of market sentiment. Judging from these indicators, the panic stampede and escape from the market caused by the previous sharp drop has been reversed in Bitcoin. Now more and more funds are flowing back into the market rapidly, which provides an important impetus for the rebound of currency prices.

The cryptocurrency market represented by Bitcoin had a very impressive rise at the beginning of this year. Bitcoin rose from below $7,000 to $10,500 in 45 trading days before the New Year. The increase of more than 50% in just one and a half months made the market believe that a new bull market had arrived. The positive expectations of the upcoming halving in May continued to ferment this bullish sentiment. At the same time, we have indeed seen more and more applications of blockchain technology and the continued rise in the popularity of related activities. However, the outbreak of market panic has caused the already fragile liquidity support of the cryptocurrency market to suffer a devastating blow. As a result, Bitcoin has given up all the gains at the beginning of the year in the past month, and once dropped to the support of the low point in April last year, which means that almost all the results of the rebound in the past year have been given up.

However, as the voices of "the reappearance of the financial crisis" are growing louder, Bitcoin seems to have gradually "calmed down". As a large number of leveraged accounts with strong speculative purposes were forced to liquidate during the recent round of sharp declines, the proportion of market participants who invest in medium- and long-term value or believe in holding coins, also known as Holders, has increased rapidly. The lower willingness of such users to sell during the decline in the market seems to have provided a more direct "bottoming" effect for Bitcoin to a certain extent.

With the introduction of a series of economic stimulus policies by major economies, the new liquidity generated by the previous large-scale sell-off will inevitably generate new investment demand as the market panic gradually subsides. As a global asset that has formed a certain consensus, the buying generated by the return of funds is expected to help the currency price to recover its lost ground to a certain extent. The rebound of international oil prices in the past two trading days after the previous astonishing decline is actually a good example, because when people find that a consensus asset is severely oversold, speculative trading will inevitably reappear.

It is true that the entire market and those large investment institutions are still in a very difficult situation, and most market analysts still firmly believe that the global recession has just begun, so the possibility of institutional investors entering the market in a short period of time may not be high. However, considering that a number of fiat currencies are currently on the verge of collapse, the pound-dollar exchange rate has fallen to a 40-year low, and the Australian dollar and the intraday exchange rate against the US dollar have also fallen to multi-year lows. Therefore, finding a sufficiently effective safe-haven currency is not only for institutions, but actually for everyone, or at least for those people whose national fiat currencies have collapsed. This reshuffle of the foreign exchange market will also stimulate the market demand for Bitcoin to a certain extent, thereby pushing up the price of the currency.