With the recent huge pullback in Bitcoin from its highs, the biggest one-month drop in 10 years (-37.9%), most market participants are very anxious and scared about the future trend of the cryptocurrency market. In terms of news, there are two key factors in Bitcoin’s recent pullback: first, Musk’s wavering attitude towards Bitcoin, as the narrative that Bitcoin mining consumes a lot of energy is at odds with Tesla’s environmental stance; and second, policy shortcomings from domestic regulators.
Despite the high short-term volatility and empty sentiment across the cryptocurrency market, I am still bullish on the subsequent market trend for the following reasons.
01 Institutions built a strong cryptocurrency infrastructure
Although the bitcoin price has recently recreated its roller coaster trend, its acceptance as an investable asset class is increasing as there is a group of institutions in the market that truly support bitcoin, and the cryptocurrency infrastructure built by them is much stronger than in previous years.
First, Square, one of the first companies to support bitcoin, saw more than $3.5 billion in Q1 bitcoin transactions on its platform, an 11x increase over the same period last year.
Secondly, PayPal also wants potential customers to be truly comfortable with cryptocurrencies and is proposing to “bring foreign money into cryptocurrencies again.” A large number of PayPal users are still trying to figure out what cryptocurrencies are and how they fit into their lives. While there are many companies that allow buyers to purchase cryptocurrencies, relatively few support debit cards, and PayPal is offering a service to convert cryptocurrencies into spendable national currencies in order to run a business anywhere that supports PayPal payments.
On May 27, PayPal announced that it intends to allow users to withdraw cryptocurrency to third-party wallets. users of PayPal and its company Venmo will be able to send bitcoin not only to users within the platform, but also to platforms such as Coinbase and external cryptocurrency wallets. The ability to withdraw coins freely will greatly enhance the user experience and responds to crypto users’ need to have free reign over their personal assets.
Additionally, in addition to Square and PayPal, Goldman Sachs’ digital assets division has said that institutional buyers have begun researching cryptocurrencies and are asking their portfolios to enter the space. Wells Fargo is also looking to enter the bitcoin market, and it will soon offer professionally managed solutions for purchasers involved in cryptocurrencies. John LaForge, Wells Fargo’s head of real asset technology, said, “We predict that cryptocurrencies are maturing and have become a viable investable asset.”
As the cryptocurrency industry becomes progressively more compliant, there will be a growing number of institutions that truly support cryptocurrencies and a continued growth in cryptocurrency industry participants.
02 Crypto Industry Growth is No Longer Limited to Bitcoin
Recently, mainstream institutions and the media have been talking about the cryptocurrency industry beyond just bitcoin. Goldman Sachs strategists and ARK founders have highlighted the potential of ethereum. Billionaire Druckenmiller has also acknowledged that Ether is leading the way in areas such as smart contracts, while there will be later entrants to challenge it.
In terms of cryptocurrency industry trends, the declining market cap share of bitcoin is an inevitable trend and a sign of progress in the industry. If Bitcoin is the only one in the entire cryptocurrency market, it only means that the industry has not made substantial progress.
Technically speaking, other cryptocurrencies such as ethereum and bitcoin are different levels of assets. As Saifedean Ammous, author of the best-selling book “The Bitcoin Standard,” says, “Other cryptocurrencies are completely different from Bitcoin, and they don’t really compete with Bitcoin. The real competitors for other cryptocurrencies are traditional platforms like Amazon Web Services.” If Bitcoin carries the banner of the cryptocurrency industry, value projects such as Ether are the life force in getting cryptocurrency applications off the ground. Going forward, we may see a gradual decrease in the correlation between the price movements of bitcoin and other cryptocurrencies, much like the relationship between the price of gold and tech stocks now.
03 An Inflationary Macroeconomic Environment
The long-term effects of the “economic recovery” are being seen globally, driven by massive liquidity creation by central banks. Some signs of inflation are already emerging, such as manufacturing costs that are spiraling upward.
According to Mixo Das, equity strategist at JP Morgan, “Policymakers have committed to accepting higher levels of inflation, higher inflation volatility, and when that happens, we will see inflation continue to move higher. Inflation hasn’t really been factored into asset prices.”
(Chart) Federal Reserve Balance Sheet
It is estimated that approximately 10% of global wealth is wiped out by inflation each year. In essence, bitcoin is the antithesis of inflation because the total supply of bitcoin is fixed, the issuance curve is declining, and it cannot be manipulated. As a result, the demand for bitcoin from individuals with large cash holdings as well as institutions will continue to expand with inflation.
04 Weak Hands Are Surrendering Chips
Bitcoin has seen a huge pullback from $64,000, which some see as a golden opportunity to get in, and others see as the beginning of a nightmare – and this divergence is reflected in the on-chain indicators.
According to the latest Glassnode data, at current levels, veteran players are continuing to hoard bitcoin, while recent new entrants continue to sell off. Chips are shifting from “weak hands” to “strong hands,” and the rate of this conversion is accelerating. Miners are also back in buying mode.
As you can see from the chart above, miners (orange arrows) and long-term holders (green arrows) are accumulating bitcoins, and only short-term holders (purple arrows) are selling.
05 Contract Rates Return to Sanity
The contract rate is currently negative, meaning that shorts are required to pay fees to longs. The volume of open contracts has not yet recovered, suggesting that leveraged participants were heavily cleansed out of this sell-off and that the capitulation of leveraged bets has effectively reset the market composition and made the market more rational. This will lead to a greater degree of bitcoin prices being driven by genuine demand from long-term holders, rather than as short-term speculative bets.
This is a truly dismal figure in terms of monthly gains and losses, with bitcoin falling by a whopping 37.9% in May. But bitcoin is also raising the bottom of the price as the chart above shows the ups and downs. People are always keen to discuss short-term price action, but often overlook the power of long-term trends. If you are a good short term trader, please sell high and sell low on your own as your goal is to earn swing gains. If you are a long-termist, continue to HODL as your goal is to gain from industry mega-trends, and the blockchain story is clearly far from over.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/bitcoin-hits-biggest-one-month-drop-are-you-scared/
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