Bitcoin price doubled in the first half of 2023 after melting off the ice of crypto winter in early January. Is it time to take profits, or does this six-month BTC rally have more in store for Q3?
“With persistent interest rate hikes, weakness in the banking sector and debt ceiling concerns, investors see bitcoin now more than ever as a sovereign, safe haven asset that has held strong and steady in the face of market uncertainty.” -Alex Adelman, CEO of Bitcoin app Lolli.
Since rallying to $29,900 on June 22, Bitcoin has been trading sideways in a range-bound channel between $30,100 and $31,100. That follows a surge upward from the $25,000 level in the middle of June, the lowest price for the coin since March.
Before that, Bitcoin price fell in a two-month tumble from the $30,300 level in mid-April.
Current spot prices happen to be close to a 13-month high level for Bitcoin. Is the market overheated or gearing up for another rally?
The following six factors in the Bitcoin price are overall bullish in the Q3 outlook, but they’re a mixed bag. There are also some headwinds rising for the OG cryptocurrency to weather.
Bitcoin ETF Fervor on Wall Street
Institutional investors are, by this time, chomping at the bit to get the private keys to blockchain assets into their portfolios. ETF buzz has already pushed Bitcoin’s price higher, but there’s room left to rally if anyone’s SEC application actually gets approved.
As Forbes reported near the end of June:
“The SEC has already approved plenty of Bitcoin ETFs and other types of crypto exchange-traded funds. But so far, the market regulator has only been comfortable greenlighting funds that track cryptocurrency futures or own the stocks of companies with indirect exposure to crypto.”
Meanwhile, investors on Wall Street are clamoring for a spot Bitcoin ETF. Crypto markets are anxiously awaiting the SEC’s approval of the first one. Because of market uncertainty over the SEC’s resistance to a spot ETF, the approval of one would likely cause an immediate reevaluation of the Bitcoin price.
Here’s a list of companies that have filed spot Bitcoin ETF applications with the SEC. They include BlackRock, Ark Invest Management, Invesco, Fidelity Digital Assets, WisdomTree, and Valkyrie.
Bitcoin DeFi, Ordinals, and BTC NFTs
Loathe to allow Ethereum, Solara, and Polkadot to have all the fun minting NFTs, some enterprising devs introduced the BRC-20 standard for minting non-fungible tokens on Bitcoin’s blockchain earlier this year.
As a result, Bitcoin has never seen anything like the record daily transaction volume the network serviced last quarter on May 1. That day, the old Satoshi blockchain’s users made 682,281 transactions in a 24-hour period.
Since then, daily transactions have driven a level of network activity that we haven’t seen since the first half of 2021 during that year’s hot crypto bull market.
Furthermore, this key metric of fundamental value is already on track in July to set another record. On July 9, Bitcoin processed and completed 594,265 transactions.
Much of this season’s intense transaction volume consisted of Bitcoin NFT sales. In fact, so-called “Ordinals” made up over half of BTC’s record-setting total on May 1, at some 54.6%.
A Spike in Institutional Interest
As time goes on, institutional interest in cryptocurrencies has only increased, not abated. That’s especially true for blue chips like BTC and ETH.
The recent launch of the first leveraged Bitcoin Futures ETF on June 27, for example, triggered a wave of on-chain BTC token purchases by funds.
Starting on June 18th, ahead of the SEC’s approval of the new 2x leveraged futures product, funds hoovered up 19,083 BTC over 21 days. At a spot price of $30,500 per 1 BTC, that was an over half-a-billion dollar blitz for institutional investors.
They didn’t stop buying up on-chain tokens in June. Bitcoin futures on the Chicago Mercantile Exchange saw contract volumes increase by 28.6% in June to $37.9 billion.
In another sign of institutional appetite, the Bitcoin futures premium for BTC contracts recently doubled in a week’s time to 6.4% on July 3 from 3.2%. That’s a bullish portent for the Bitcoin price, and furthermore, there seems to be more room left for it to rise.
This could mean reversion, as futures premiums ran low over the past year, but it might indicate healthy demand for open interest in the future Bitcoin price moving forward.
“The year after Bitcoin halving is usually the bull year.”-Binance CEO Changpeng Zhao, Twitter Spaces (July 5, 2023)
BTC daily transaction volume, network hash rate, and stock-to-flow against price numbers are all running at bullish levels and are backed by real momentum going into Q3. This bodes well for a continuing rally.
Bear markets are for builders, and with the overwhelming enthusiasm for the new Bitcoin products we’ve seen in H1, it really shows.
While transaction volume is higher than ever with these new use cases for Bitcoin, most holders of BTC are doing just that. According to Ark Invest’s June monthly Bitcoin report, 70% of the BTC supply hasn’t moved for a year.
Because Bitcoin is an economic currency (not a financial one) with a limited supply, the BTC economy’s tightness with the supply over the past 12 months is an indicator of possibly higher prices on crypto exchanges for the precious digital asset.
Global Regulatory Hawkishness
As the old Wall Street saying goes: Markets abhor uncertainty.
The unfolding saga of SEC regulation by lawsuit and enforcement against cryptocurrencies has certainly raised a number of questions about the nascent industry’s future.
Meanwhile, the IRS is missing in action as the industry and crypto holders await tax rules for digital assets. As Politico reported on June 26:
“The long-awaited IRS tax compliance rules are stuck in an unexplained delay even as the SEC aggressively targets the crypto industry for regulation.”
Even as Bitcoin and its rivals continue to post ROIs beyond the pale of what investors are accustomed to expecting on stock exchanges (even from high-flying stocks like Tesla and Nvidia), institutions are still cautious to enter the blockchain space because of regulatory ambiguity.
That’s a drag on crypto prices across the board, including BTC. Bitcoin is taking some heat from regulators in the U.S. and around the world, but not nearly like its competitors are.
Most notably, the SEC’s push to regulate many blockchain tokens as securities has conspicuously left Bitcoin and Ether, among others, out of the hot seat. So, regulatory threats to the Bitcoin price may be balanced by worse threats to some of its competitors.
Global Macro Financial Factors
Like regulatory concerns for blockchain, global macro factors in crypto prices are a mixed bag for Bitcoin in the next quarter and beyond.
June’s pause on months of interest rate hikes by the Federal Reserve and ECB was the most pivotal financial event of the previous quarter.
BTCUSD markets seemed to love it, or at least not mind it at all, as they rallied from $25,000 in mid-June to above $30,000 in under a week’s time.
Relief from rising prices to borrow money to make capital investments in businesses, or buy stocks and cryptocurrencies, is a tailwind for markets. But it seemed to get priced into BTC’s chart within days, and more interest rate hikes may await markets later this year if the current regime does not whip inflation.
Meanwhile, analysts are pushing back U.S. recession projections to next year or even projecting a slowdown instead of a recession. On balance, that’s good news for just about everyone, not the Bitcoin price especially, and not excluding BTC prices.
But of particular importance to Bitcoin: Energy prices have been falling worldwide for a year. Oil prices closed at $121/barrel a year ago. This month, oil closed at $73 on July 10.
Given the importance of electricity to Bitcoin’s proof-of-work blockchain, as one of the main costs for miners to deliver the network’s services, this is very bullish for the oldest cryptocurrency’s spot prices.
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