BTC is skyrocketing. What are the factors driving the rise?

veDAO研究院

23-10-27 20:00

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Source: veDAO

The price of Bitcoin has reached its highest point in 17 months, the highest level since May 2022. This surge has caught many people off guard, and as the "king of cryptocurrencies" steadily rises, it has brought a bullish atmosphere to the crypto market. So what are the reasons behind this surge? And what is the future development of BTC?

Previously, veDAO Research Institute mentioned that although fake news caused BTC's price to experience a roller coaster ride, the market sentiment is positive and the trend will be good in the future. In this article, veDAO Research Institute will bring the reasons for the recent rise of BTC and the analysis of its subsequent trend.

The reason for the rise in BTC price

Considering the volatility of the cryptocurrency market, a single factor cannot be viewed as the sole reason for the upward trend. In the past few days, BlackRock's BTC spot ETF appeared on the DTCC website, was briefly removed, and then added back, which is also considered one of the reasons for this surge. In addition, there are other more influential factors:

BTC Halving is Coming Soon

There is less than 6 months left until the BTC halving. The cryptocurrency community expects this event to kick off the next bull market cycle. According to analysts such as Michaël van de Poppe, now (the 6 to 10 months before the BTC halving) is the best time to invest in altcoins, and venture capitalists are eager to start receiving funding support.

While investors are counting down the days for their investments to appreciate, BTC miners are worried about the event. The miners' concern stems from the fact that the event will lead to a halving of mining rewards, from 6.25 BTC per block to 3.125 BTC. However, for investors, the halving event is valuable because it reduces the growth of newly mined BTC. Over time, the operating costs of miners are also increasing. Specifically, mining infrastructure is becoming more complex and expensive. Others complain about rising electricity bills, and US miners may face a 30% tax, which has caused more anxiety. This is because BTC hash power (the computing power required for computers or hardware operations to solve different hash algorithms) is mainly concentrated in the United States.

美国银行危机与 BTC

The US Banking Crisis and BTC

The US banking crisis that occurred in March of this year has become a blessing for BTC and the cryptocurrency market. One of the most important reasons is the lack of correlation between cryptocurrencies and the US stock market. Although the banking system has since stabilized, the current market conditions suggest that a similar situation is forming again.

美国银行再次受到打击

translates to

Bank of America hit again

The four major banks on Wall Street in the United States - Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS), and Bank of America (BAC) - are currently at their lowest levels since the banking crisis. The performance of these banks from the beginning of the year to now shows that their stock prices are at their lowest, even lower than in March of this year. Citigroup's stock price has fallen 14% since the beginning of the year, and Goldman Sachs' decline is also close to 13%. Morgan Stanley's losses exceed these two, having fallen 16% since the beginning of the year, while Bank of America leads with a 23% decline.

Cryptocurrencies are negatively correlated with US banks

Despite the current state of the US economy not supporting a bullish narrative for banks or the stock market, the situation in the cryptocurrency market is quite different. Currently, BTC is showing a clear negative correlation with the S&P 500 and Nasdaq indices, at -0.8 and -0.78 respectively.

In March, as banks faced immense pressure, the price of BTC rose along with other cryptocurrencies, and coincidentally, BTC is now also rising. This has caused other alternative coins to rise as well, pushing the market capitalization of the entire crypto market to $1.244 trillion.

From this perspective, the losses of American banking institutions are being transformed into profits for cryptocurrency investors, indicating that the flow of funds into this field is not only influenced by the United States. However, the continued losses of banking institutions may not be the only reason for the rise of BTC.

Behind the Israeli-Palestinian Conflict: US Treasury Bonds and BTC

BitMEX co-founder Arthur Hayes recently wrote that the current economy is being affected by "global warfare," which has catalyzed the recent sell-off of US Treasuries. As Treasuries are no longer considered safe, investors are choosing BTC and gold as alternative investment commodities.

Arthur Hayes elaborated on the potential impact of the current tension in the Middle East on the financial market. He pointed out that as the US government continues to provide military aid to Israel, this will lead to the sell-off of US Treasury bonds. He explained, "If you are a long-term investor in US Treasury bonds, the most worrying thing is that the US government does not think it spends too much. If US defense spending enters a ridiculous mode, tens of trillions of dollars will be borrowed to support the war machine, which will make the government need to sell more long-term bonds to investors to absorb funds, and the global distrust of US Treasury bonds will further increase. That's why bonds are being sold off and yields are rising."

As the "Israeli-Palestinian conflict" and the "Federal Reserve (FED) pause in interest rate hikes" push up US Treasury yields to a 16-year high, Arthur Hayes believes that when long-term US Treasuries no longer provide security to investors, they will seek alternative solutions, and the preferred assets in this context are gold and BTC. Arthur Hayes believes that the rise in BTC and gold is not speculation about whether ETFs will be approved, but a response to the high inflation caused by the future depreciation of the US dollar and war in the context of a sharp drop in long-term US Treasuries. Arthur Hayes also mentioned another reason for the bond market crash, as the Fed's interest rate hike cycle comes to an end and the US economy remains normal, investors no longer have more incentive to hold long positions, which will also lead to the sale of US Treasuries.

BTC prices may rise due to other factors

A group of key investors may also be one of the reasons for this surge. Since September 21, whale addresses holding 100 to 1000 BTC have been accumulating BTC. In one month, the BTC holdings of this group increased by 50,000 BTC, worth $1.7 billion, which increased their holdings from 3.85 million BTC to 3.9 million BTC.

BTC Trend

At the time of writing, the BTC price is $34,572 USD, and due to strong market momentum, it may continue to rise. It remains in the upper range of the market, and the chart below shows an evaluation from the low point in early 2023 to the high point this year at $35,184 USD.

The price of BTC has doubled from the closing price of $16,542 on December 31st, breaking through the key retracement level of 61.8% Fibonacci at $28,067 during the upward trend. The strong momentum of this rebound also broke through the 78.6% Fibonacci level, reaching $31,197.

The pressure from increasing buying volume may push BTC prices higher, with a bullish target of $35,000. In this case, the most reasonable target would be the Fibonacci chart's top level of $35,184.

However, if profit-taking begins, the BTC price may still experience a downward trend. In this case, the support level for BTC may be around $31,197 or more likely around $28,067. In the most severe case, the price may drop to the level of $25,869.