1. Technical Perspective
I stated in one of my recent Daily Roundups that generally the market outlook is positive. There are many factors for this. The most important one is that the 200 daily moving average was broken at the end of March. The very positive momentum of this surge has dragged Bitcoin now all the way up to 6300 – 6400 levels. A very decisive area as the Fibonacci retracement shows. The next hurdle – and the first essential hurdle during this recent surge – that the market needs to take from here is the 6700 – 6800 level. This is also the area where Bitcoin was stuck for a long time in the summer and autumn of last year. However, if this hurdle is not broken prices could depress substantially once again and even lower than before.
2. Institutional Investors Have Regained Interest
It is hard to not sound arrogant when making the following point. But it is proven that when an asset undergoes a hype that many non-professional investors buy into the hype. Although at this point the asset is highly overpriced already. In trading circles, the collective that buys into the hype is called ‘dumb money’. There is also the opposite term for that and its a self-given name from professional investors. Of course, we are talking here about ‘smart-money’. The smart money invests anti-cyclical. It is easier said than done but it is no wonder that Fidelity, Huobi and many others have promoted crypto investments for institutional investors at around this time. Institutional investors have likely contributed to the recent surge, though there is ultimately no proof.
3. Miners Came Back
That miners came back is part of a self-reinforcing effect of the market surge. But it is still a good indicator of Bitcoin coming back to a normal state. The ATH for the hash rate was reached in October last year with abou 60,000 TH/s. Since the market depressed beneath the $6000 line to about $3200, the hash rate sank. At the beginning of May it already reached the 58,000 TH/s. Due to the high volatility of the hash rate it currently sits below 50,000 TH/s. Many miners had to leave the market because mining simply became unprofitable for them. However, this indicator might be a deceiving one. During the bear market, many miners have miscalculated their business. They invested a lot of money into mining equipment and many of them should sit on a lot of debts still. This means that there is potential for selling pressure and if it unloads all at once it could mean that prices could decline significantly once again.
A good analysis always considers at least two scenarios. Simply put, if the price surges above 6700/6800 it would be a strong bullish signal and should move prices even higher. However, the recent 8 – 10 weeks of good performance are not a guarantee for a continuation of the trend. There is a lot of potential selling pressure due to heavy losses that miners and also investors made during the bear market. Also the effect of breaking the 200 daily MA should not be overstated. During the last bear market in 2014/15, Bitcoin broke the 200 dMA three times. But the resistance held out three times. Only the fourth signalled a slow start into the last bull market. It is now only the second time that Bitcoin broke the 200 dMA since the bear market started in December 2017.