The market has been largely mixed and indecisive over the past few days and weeks. On Tuesday morning, we saw a steep sell-off to $28.8K followed by a steep recovery up to $34K. That market event, like others that preceded it, presented an opportunity for well positioned Long Term Holders (LTHers) to pick up discounted Bitcoin from capitulating Short Term Holders (STHers).
China’s Bitcoin mining ban is being reflected in a downturn in the network hashrate. It appears this is a real ban on mining and there are indications it is due to a crackdown on corruption by regional CCP officials found to be allocating energy grid power to miners. China has worked extensively to centralize control of their energy grid to better plan power delivery to high population centers. Most energy produced in China are in far-flung central provinces, not where the major population centers along the eastern and south eastern coastslike Beijing, Guangzhou, Shanghai, Shenzen, Tianjin and several others.

I expect the indecisiveness to continue for a period of time as the market digests the China ban.

Here’s my take:

The China ban on mining is short term bearish. We saw the price spike down early Tuesday morning as western news outlets carried the story.

The China ban on mining is long term bullish. A historical 60% of hashrate in China has been a long term issue in the Bitcoin community’s desire to maintain decentralization. Mining equipment is hitting the market with Bitmain, the largest manufacturer, hosting a conference between their largest clients and American mining businesses. Texas Governor Greg Abbott attended to welcome the attendees.

Ultimately, it’s an unfortunate development for the people of China, but not unexpected behavior from the totalitarian nature of the CCP. Bitcoin is a technology that promotes freedom from the trappings of monetary surveillance, the CCP has demonstrated time and again its willingness to restrict any perceived threats to its own power structure.

Now, onto the market:

Tuesday was a high volume day, lots of coins moving from STHers to LTHers..

We saw a V-shaped recovery which is a pretty good indicator of a local bottom. Could it be that sellers sold on the bearish China news while buyers bought on the bullish China news? We’ll need a few days and weeks to see how this plays out.

On-chain activity is at lows not seen since earlier this year, it’s quiet on the blockchain.

  • This is typical of mid-cycle corrections, 2021 is tracking market behavior closer to the 2013 cycle
    than the 2017 cycle.
  • During the 2013 cycle, Bitcoin hit an ATH of $240 in early April before correcting down to a low of $45. It ranged for months (197 days) before surpassing the $240 ATH on November 6, 2013. Bitcoin then went on to 5x from there several weeks later to $1150, a classic supply crunch leading to a blow-off top. It was a nice clean bang to the end of the bull-cycle and not seen again until 2017.

Bitcoin dominance is up from 39% to 46%. Bitcoin dominance is the percentage of the total value in Bitcoin vs. all other cryptocurrencies combined.  I’m not a big fan of this metric as it implies that all cryptocurrencies are the same. Cryptocurrencies fall into to several categories – Bitcoin stands unique as the only decentralized monetary network, while the others address particular use cases. That said, Bitcoin dominance increasing indicates that value has either moved out of altcoins into USD or into Bitcoin.

The longer Bitcoin consolidates in this price range, the better it will be positioned to drive stronger upside momentum later in the cycle. The reason is simple, Bitcoin has both a finite supply and a finite rate of new supply as the price goes up. Those investors that doubted, capitulated and have lesser conviction on their altcoin investments start to fear missing out (FOMO). As they FOMO back in, price continues to rise which creates continual FOMO at the same time the supply is being further reduced.

One indication this is starting to happen is Ethereum is losing value against Bitcoin. Put another way, investing US dollars in Bitcoin has been a better performing strategy over the past couple of weeks. We’ve seen this metric develop later in the 2017 cycle, I believe it’s due to a couple of reasons:

  • Ethereum was out-speculated by other altcoins in 2017. In 2021, it was out-speculated by DeFi Tokens – this leaves short-term investors in a constant state of paranoia over their investment decision.
  • Ethereum’s roadmap and malleable monetary policy doesn’t create a strong enough value proposition for those longer-term investors looking to hedge against monetary inflation of fiat currencies compared to Bitcoin.
  • Bitcoin’s attributes and fundamentals are stronger than Ethereum and other altcoins – it’s the best risk-managed trade in the space.
  • New investors may come into the space through Ethereum, Ripple, Dogecoin, and other cryptocurrencies where they get exposure to Bitcoin. Some will convert into Bitcoin after suffering extreme losses. As more investors capitulate into Bitcoin, a feedback loop is created causing more capitulation as observed in 2017.

In summary:

There is a lots of indecisiveness but also indications of capital inflow from other coins.

  1. If price ranges for the next few weeks between $30K and $40K, then we’ll watch the metrics closely to determine how it will develop.
  2. If price goes above $37K sustained, we’ll then look for $42.5K sustained to confirm a bull market continuation.
  3. If price moves below $30K sustained, it will be a strong indication that we’re entering an early bear market and we’ll monitor metrics to determine new developments.

The next few days and weeks will be crucial towards establishing a market direction, but if the current on-chain patterns and trends continue, I’d expect a continuation of the bull market.

Leave any questions, thoughts and comments below!