Bitcoin Cost Pattern: The crypto industry has always moved faster than traditional finance. During this cycle, however, the pace of change has been unprecedented. Keeping up with all the new projects and trends is a daily challenge. Before diving into Bitcoin price trend analysis, let’s quickly run through the latest news in the space.
Decentralised finance (Defi) has been at the centre of crypto attention since early 2020. But, fundamentally, most Defi projects run on the Ethereum blockchain. For Ethereum itself, the transition to proof of stake (PoS) has been in the works for several years, and we are finally getting close to the launch of Phase 0, the beacon chain. The beacon chain will run in parallel with the main Ethereum chain and is meant to support Ethereum’s transition to staking.
In Defi itself, a retrospective airdrop of the Uniswap token, UNI, sent shockwaves through the crypto community. UNI was airdropped to the historical users and liquidity providers. Anyone who has ever used Uniswap, even for a failed transaction, received 400 UNI tokens.
UNI was listed on several exchanges shortly after its launch, with Binance listing UNI within 90 minutes, the quickest exchange listing in history. In the process, UNI clogged the Ethereum network causing wild gas prices of more than 1,000 gwei. As a side note, in BTC price USD, the Uniswap exchange has been generating more fees than the entire Bitcoin network for most of September.
Now let’s talk about wrapped Bitcoin, or WBTC, which is an ERC-20 token representing Bitcoin on the Ethereum blockchain. WBTC is minted by locking a corresponding amount of BTC with a custodian. Why do we need WBTC? Simple, the Ethereum ecosystem, which includes Defi, provides outstanding opportunities for yield generation. These are not available on the Bitcoin blockchain.
For the week of September 14, 2020, BitGo, one of the WBTC issuers, minted an all-time weekly record of almost 21,000 wrapped Bitcoins. The total amount created by different issuers has reached 107,000 BTC worth some $1.1bn (£855m, €937m). This is a compelling use case and a step in the direction of bringing more tokenised assets to the Ethereum blockchain.
Then there’s the KuCoin hack. Hacks, unfortunately, are not new in the crypto space. Usually, they bring down prices across the board. But the KuCoin hack, while relatively large in the historical context, did not significantly impact the price. To sum it up, KuCoin is a centralised exchange. According to KuCoin, around $150m in crypto assets were stolen, but some estimates are much higher. KuCoin has an insurance fund that might cover some of the losses, but the situation remains fluid.
Is Bitcoin still as special in 2020 as it used to be?
Many new crypto investors are drawn in by the hype surrounding Ethereum, yield farming and Defi. These are the areas of lightning-fast, Ethereum price USD, innovation and excessive price moves in both directions. By comparison, not much is happening on the Bitcoin network. Remember that the Bitcoin blockchain doesn’t have smart contract functionality, and its primary purpose is decentralised value transfers.
So, is Bitcoin still special in 2020?
It most certainly is. Bitcoin shouldn’t be compared to Ethereum. Its proof-of-work algorithm makes it the most secure blockchain currently available. Instead of scalability and functionality, Bitcoin prioritises security and decentralisation. That’s the ethos of the Bitcoin blockchain.
Today, those qualities remain attractive to many investors. Long-term trends are also supportive. Inflationary monetary policies around the world make BTC even more attractive as a store of value.
Institutional investors continue to crowd into the industry, which remains nascent. Bitcoin is still too small for any meaningful inflows of institutional capital. According to a recent survey, institutional investors believe that the Bitcoin market will grow, creating better liquidity conditions. They also expect more investment vehicles to become available.
The upcoming generational wealth transfer is also bullish for BTC. Millennials and Gen Z, both natively digital generations, increasingly view Bitcoin as their generational investment. As they begin to inherit the wealth of the baby boomers, What pattern is Bitcoin forming? the Silent generation should increasingly flow into BTC and other crypto projects.
Bitcoin is a decentralised, deflationary, and censorship-resistant alternative to money. In 2020 and beyond, this narrative will likely continue to have value.
Bitcoin price trend analysis
Bitcoin has had a good 2020 to date, breaking through $12,000 on August 18 and reaching its highest level since August 2019. It has recently given back some of the gains, trading in a tight range of around $10,500.
What drives the value of BTC today?
As we discussed earlier, the bull case for Bitcoin hinges on a few key pillars. There’s the digital gold narrative, supported by the supply function of Bitcoin. Institutional interest, generational transfer and consumer adoption are a few other variables in the BTC price analysis.
Supply has always been crucial for BTC, with a total of 21 million coins to ever be mined. As of September 26, there were more than 18.5 million in circulation, suggesting a much slower pace of future supply and, perhaps, increased scarcity value for BTC. Of the remaining BTC, half will be mined in the next four years.
As for institutional adoption, What is the algorithm for Bitcoin?, assets under management (AUM) of crypto funds globally increased from $1bn to $2bn between 2018 and 2019. The AUM at the end of 2020 is expected to be much higher. In another sign of continued institutional engagement, Bakkt’s Bitcoin futures volume has recently hit a high of $200m.
A survey by PwC and Elwood Asset Management conducted earlier this year discovered that 63 per cent of crypto funds were launched in 2018 and 2019. Among the survey participants, 97 per cent indicated that Bitcoin continues to be the favourite asset to trade. ETH was in second place, traded by 67 per cent of the participants, while XRP and LTC were at 38 per cent each.
The adoption and usage of BTC have also been growing. Cambridge Centre for Alternative Finance recently estimated that 100 million people globally hold some BTC and other crypto assets.
Bitcoin price expectations: where to next?
Bitcoin continues to present an attractive investment opportunity. While all forecasts, including Bitcoin price projections, have little value, the network fundamentals, as well as sentiment and technical indicators, remain supportive.
The hash rate of the Bitcoin network and the difficulty level are at all-time highs. Similarly, the 30-day average of active Bitcoin addresses, a good proxy for adoption, is more consistent with a $15,000 BTC price forecast, according to Bloomberg. Bitcoin held on exchanges has been declining as well, suggesting that more is stored off exchanges and indicating a longer-term investment horizon.
Other fundamental and technical indicators like BTC production cost, the increasing market capitalisation of stablecoins, such as Tether, and historical price action point to a relatively bullish Bitcoin price outlook.