Crypto comeback? Bitcoin is in a more enduring bull market because of China's crackdown – Bloomberg Intelligence
(Kitco News) The bitcoin bull market could prove to be more resilient than before and the current June prices will one day appear cheap, according to Bloomberg Intelligence.
"Selling Bitcoin around good support and similar dips below most means as about $30,000 this year hasn't ended well, and if the key question this time around is whether it's different, we see a more-enduring bull market," said Bloomberg Intelligence senior commodity strategist Mike McGlone. "Bolstered by migration into the mainstream, Bitcoin's price in June 2021 may one day look cheap."
After briefly dropping below $30,000 on Tuesday and erasing all gains for the year, bitcoin is bouncing back, last trading above $33,000, up more than 15% on the year.
Bitcoin is setting up a new trading range in a more enduring bull market, wrote McGlone on Wednesday. This is partly because of how mainstream bitcoin has become.
"Longer-term buy-and-hold investors are on the rise in the benchmark crypto as it gains widespread adoption and traction in portfolios. Our chart depicts conditions that have typically brought out responsive investors and supported Bitcoin in the past, when the price slips around 30% below its 20-week moving average. Similar extremes below this mean marked about $4,000 as key support in 2018 and the short-lived 2020 swoon," he said.
On top of this, China's crackdown on bitcoin mining will end up working in favor of the bitcoin price in the long term by limiting supply.
"What's different now -- other than just higher prices -- is less supply and more demand, as evidenced by ETFs, notably in Canada. China's crackdown extols the benefits of this unique, independent digital reserve asset," McGlone said. "This hash rate measure of the depth and processing power of Bitcoin has dropped due to China crackdowns, but we view this as a longer-term bullish indication of the value of the digital asset."
Over the weekend, China's crypto mining crackdown extended to the southwest province of Sichuan. There was also a report by the Chinese state media outlet Global Times over the weekend, which stated that more than 90% of China's bitcoin mining capacity was going to be shut down, at least in the short term, as local regulators implement similar measures as in the Sichuan province.
On top of this, the People's Bank of China said it called on major banks and Alipay, a payment service run by Alibaba affiliate Ant Group, to crack down on crypto trading.
In terms of future price direction, it is more likely for the cryptocurrency to revisit resistance at $40,000 rather than dip towards $20,000, McGlone pointed out.
"Selling Bitcoin on initial dips below its 50-week moving average in the past has proven a good way to lose money, even in bear markets. Our graphic depicts the first test of this annual mean since the crypto breached this moving average resistance in May 2020 to launch the current bull market. Now serving as support, when the 50-week mean was initially revisited at the onset of the 2018 bear market, Bitcoin bounced over 40% and took about six months to sustain lower prices," he wrote.
Another supportive driver for bitcoin is the rising global debt-to-GDP levels and widespread quantitative easing combined with the digitalization of finance.
"The upstart digital reserve asset may have a primary advantage of good timing, with the world going digital at about the same pace as increasing levels of monetary and fiscal stimulus. Our graphic depicts friendly macroeconomic trends for the price of Bitcoin -- U.S. debt and G4 central-bank balance sheets are rising rapidly relative to GDP. Even if the trajectory of these trends subside, the digitalization of finance and money should maintain underpinnings for the benchmark crypto's price," McGlone said.