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OKEx Research: Bitcoin is approaching $16,000, can it replace gold and become the mainstream?

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The bull market of Bitcoin this time is mainly due to the joint effect of funds outside the circle and funds inside the circle: the entry of institutional investors and the inflow of funds in the DeFi field. At the same time, the hotly discussed US electi

Original source: OKEx Research

Continued throughout the summer The DeFi mining boom has subsided, and many DeFi coins continue to shrink. In contrast, the BTC market is gratifying. The price of the currency hit a new high in the past two years, once approaching $16,000, and it has risen by more than 50% in the past month, making great strides into a bull market. This article discusses the reasons for the rise of Bitcoin from the perspective of fundamentals and technical analysis, and makes predictions for the market outlook.

1. Fundamental analysis

1. Traditional financial institutions enter Bitcoin

The direct reason for the current round of Bitcoin's rise is the entry of a large number of traditional institutions. On the one hand, the total amount of bitcoins is limited at 21 million, and about 18 million have been mined so far; on the other hand, the chips for holding bitcoins are highly concentrated, and miners and investors who entered the market early hold a large amount of bitcoins. Therefore, the actual number of bitcoins in circulation in the market is not much. The huge amount of funds brought by traditional institutions and the market enthusiasm driven by them can easily drive up the price of bitcoin, resulting in an increase of up to 50% within a month. The table below summarizes the entry information of traditional institutions. In addition to the statistical information in the table below, it is not ruled out that there are many institutional giants that have entered the market in a low-key manner and have not yet announced to the public.

So why are more and more traditional institutions starting Have you invested in Bitcoin? The macroeconomic environment is becoming increasingly severe this year. In 2020, global black swan events will occur frequently. The "pandemic" will cause a global economic recession. Central banks' over-issued currency will result in a low interest rate market environment. Traditional economic theories cannot guide investment in the current situation. For example, according to the Merrill Lynch clock theory, investing in bonds under crisis conditions is a wise choice. But the reality is that investors are disproportionately allocated to these bonds, which have zero nominal yields and negative real yields. And in the context of the massive increase in debt creation and debt monetization by governments around the world, more new debt and new funds will be generated, and continuing to hold these bonds is outweighed by the gains.

Therefore, emerging assets represented by Bitcoin have entered people’s line of sight. Bitcoin was born during the 2008 financial crisis, and its core idea is to resist a country's large-scale over-issued currency. Bitcoin is becoming more popular with institutional investors than gold, and is eating into demand for gold ETFs, according to JPMorgan Chase, which family offices see as a digital alternative to gold. Although it is generally believed that Bitcoin has high risk characteristics, behind the high risk is often high return-in the past decade, the price of Bitcoin has increased thousands of times. Under the uncertain global macro situation, long-term negative interest rates in the future market, and "money is worthless", people will prefer some high-risk and high-yield alternative assets, so emerging assets such as Bitcoin have become one of the main choices for investors to allocate one.

2. The DeFi craze recedes and funds are turned to Bitcoin

< p line="kvXu"> In addition, the DeFi mining boom that lasted throughout the summer has receded, and a lot of funds have begun to withdraw from DeFi and enter other fields, such as Bitcoin. According to CoinGecko, all 55 currencies in the DeFi field have fallen in the past week. Due to the rise of Bitcoin, the total lock-up volume of DeFi in US dollars has not shown a significant decline, while the lock-up volume in BTC has fallen by 2.36%. The lock-up volume in ETH fell by 7.23%.

As MicroStrategy founder and CEO Michael Saylor “Bitcoin’s global recognition, brand recognition, ecosystem dynamism, network strength, architectural resilience, technical utility and community spirit are convincing evidence of Bitcoin’s superiority as a long-term store of value asset class,” Therefore, Bitcoin is also the first choice for investment of funds in the circle. Many funds in the DeFi field in the market have switched to Bitcoin. In the end, the price of Bitcoin has been rising in the past month, while many DeFi currencies have been falling. This is also an important factor affecting the price of Bitcoin.

3. The U.S. election has little impact on the price of Bitcoin

The quadrennial U.S. elections have drawn global attention, and generally election results will have a greater impact on financial markets. As a result, many people discussed how the results of the general election will affect the cryptocurrency market, but the author thinks that the impact will be minimal. At present, the cryptocurrency market has not been included in the mainstream financial market, and most institutional investors have not yet included cryptocurrency in their asset allocation pools. The decisions made in the traditional financial market will not affect the flow of funds into or out of the cryptocurrency market; The money market is still a niche market, with a total market capitalization smaller than the total market capitalization of Apple stock. Therefore, the impact of the results of the US election on the traditional financial market will not be passed on to the cryptocurrency market.

Even if the election results have little effect on the price of Bitcoin, in the long run, will the election results Will it affect the policy of the United States towards the cryptocurrency market? The Democratic Party is a left-wing party, emphasizing big government, and therefore advocates strengthening financial regulation; while the Republican Party is a right-wing party, advocating small government, representing the interests of business owners, and advocating de-regulation. The representative policy views of the two parties involved in the field of cryptocurrency in this election are as follows:

It can be seen that the Democratic camp is more emphatic on strengthening the supervision of cryptocurrencies, while the Republican camp is more open. Therefore, if the Democratic Party wins, then the cryptocurrency market will be under certain regulatory pressure, which is not conducive to the rise of the cryptocurrency market in the short and medium term, but in the long run, a healthy and regulated market will promote the further development of the cryptocurrency market and will be brought into the mainstream In financial markets, this is good for the cryptocurrency market. If the Republican Party wins the general election, the cryptocurrency market will be positive in the short to medium term, but in the long run, certain regulation is essential to allow mainstream financial markets to accept cryptocurrencies.

2. Technical Analysis

From the perspective of technical analysis, Bitcoin has entered a bull market, with an increase of more than 50% in the past month, and the RSI index exceeds 80, which is a typical overbought state of a bull market. On the daily line, since the MACD line (blue line in the figure below) crossed the signal line (red line in the figure below) at the beginning of October, a buy signal was issued, and the market entered an upward channel; although the MACD line crossed downward around November 3 The test of the signal line, but finally reversed, turned up, and then brought the recent rise; the MACD line is still above the signal line, but the distance above the zero line is too far away, indicating that the market is in an overbought state. In the future, if the momentum of the MACD line weakens, the market will undergo a pullback. Judging from the RSI indicator, the current RSI has exceeded 80, indicating that the market is in an overbought state, and there is a possibility of a callback in the future.

Elliott Wave Theory believes that each cycle consists of 5 rising waves and 3 falling waves, and in this round of price cycle, the current market position is most likely to be in wave 3, which is the wave with the strongest increase, so the above indicators are all in an overbought state. The end state has not yet appeared. If the wave develops well, it may reach the peak of the current cycle after 4 waves of correction and 5 waves of rise; if the wave does not develop well, it may directly enter the downward trend.

3. Conclusion

After the previous analysis, the bull market of Bitcoin this time is mainly due to the joint effect of funds from outside the circle and inside the circle: the entry of institutional investors and the inflow of funds in the DeFi field. Price has little effect. In today's macroeconomic context, Bitcoin is favored by institutional investors, and even erodes the investment demand for gold, becoming an emerging investment tool. Technical analysis shows that Bitcoin is in the third wave position of the Elliott Wave Theory cycle. If it develops well in the future, it may rise again after a short correction and reach the peak of this cycle; otherwise, it may directly enter a downward trend.