BTC has been volatile recently. How will the market develop in the future? This is one of the important issues that the market is currently concerned about. This article discusses the trend of Bitcoin in May from the perspectives of Bitcoin halving cycle, macroeconomic analysis, on-chain data, and geopolitical situation. The core points of this article are as follows:
1. From the perspective of the Bitcoin cycle, the current Bitcoin price may reach its first interim high after the deep bear market at the end of May.
2. With the expectation of stopping interest rate hikes, the weakening of the US dollar may stimulate some people to start looking for alternative assets, which will stimulate further increases in Bitcoin and other assets; but with the overall economic downturn, Bitcoin, as a new type of global asset, may also experience a deep correction, and in the later period, against the background of interest rate cuts, Bitcoin and other assets may perform better than traditional assets.
3. Against the backdrop of the Fed’s interest rate hikes and great power competition, Bitcoin’s safe-haven properties are increasing; from the perspective of the correlation study between BTC and gold, as people’s demand for Bitcoin as a safe-haven increases, the correlation between Bitcoin and gold is also increasing.
4. From the data on the chain, new market demands are still entering the Bitcoin network, and the demand for text inscriptions has increased significantly recently. This means that the NFT ecosystem and DeFi on Ethereum are still transferring to the Bitcoin network, which is the main driving force for the increase in Bitcoin's intrinsic value. It is also under this impetus that Bitcoin prices have gained substantial support.
5. From the perspective of technical analysis, MA65 (around US$26,800) is currently a very important support. If it falls below, Bitcoin will most likely enter a deep correction.
Cycles are king, when will BTC reach its peak?
On April 25, the British Foreign Secretary quoted a famous line from the Romance of the Three Kingdoms: "After a long period of division, there will be unification, and after a long period of unification, there will be division." In terms of the world situation, this may be the historical cycle that the world is currently experiencing; in the crypto world, Bitcoin is also currently following its halving cycle. We previously discussed the bottoming time of Bitcoin in the article "Bitcoin 2022 Annual Review and Trend Outlook" combined with on-chain data. At present, Bitcoin may be facing another key node in the cycle.
From the perspective of Bitcoin cycles, the current Bitcoin price may reach its first interim high point after the deep bear market at the end of May. CryptoChan (@0xCryptoChan), a crypto V, tweeted on April 25: The black line above the graph is the#BTCprice, and the orange line below is the SOPR indicator for long-term BTC holders (SOPR refers to the ratio of the average selling price of BTC sold by holders over a period of time to the average buying price of BTC sold). Historically, after the orange line successfully broke through 1.0, it took 37 days (12 years), 41 days (15 years), and 39 days (19 years) to reach the first interim peak of the coin price after the deep bear market. Currently, 7 days have passed since the orange line successfully broke through 1.0.
When will the Fed stop raising interest rates? What impact will it have on BTC?
In an earlier article, we have explored in depth the deep economic design behind Bitcoin's four-year halving, which conforms to the "inventory cycle", that is, a short cycle; the macro-economy may also be dominated by the short cycle, providing an external node signal for Bitcoin to change, which also points to the end of May.
This week, several Fed speakers supported the view that the Fed will raise interest rates by another 25 basis points at next week's meeting. In her speech on Thursday, Cleveland Fed President Loretta Mester hinted at support for another rate hike to tame inflation, while saying it was necessary to pay attention to recent banking pressures that could curb credit and suppress the economy. "I expect monetary policy will need to move further into restrictive territory this year, with the federal funds rate rising above 5% and the actual federal funds rate remaining in positive territory for some time," Mester said. New York Fed President John Williams said on Wednesday that U.S. banking pressures could lead to a credit crunch, and that U.S. inflation remains too high, so the central bank still needs to maintain a tight monetary policy. According to CME's FedWatch tool, the market expects a 25 basis point rate hike in May to be 82.6%.
However, unlike the market consensus that the Fed will raise interest rates for the last time in May, Nomura Securities believes that the Fed is more likely to raise interest rates in June. The agency pointed out that recent surveys show that short-term inflation expectations have rebounded, which puts upward pressure on wage growth, posing a risk to "super core inflation." In its latest report this week, Nomura predicted that the Fed may raise interest rates twice more, including the May rate hike. Nomura's specific forecast is that the Fed will raise interest rates by 25 basis points in May, and if wage inflation continues to be high, it will raise interest rates again in June.
Overall, the Fed is likely to raise interest rates by 25 basis points in May, and will stop raising interest rates once more in June at most; under the expectation of stopping interest rate hikes, the weakening of the US dollar may stimulate some people to start looking for alternative assets, which will stimulate further increases in Bitcoin and other assets; but with the overall economic downturn, Bitcoin, as a global asset, may also experience a deep correction, and in the context of later interest rate cuts, Bitcoin and other assets may perform better than traditional assets. The following are some senior people's predictions on the possible impact of the Fed's interest rate cut on the crypto market.
On April 13, Galaxy Digital Holdings founder Mike Novogratz said in an interview that he expects gold, the euro, Bitcoin and Ethereum to outperform competing investments as the Federal Reserve begins to slow down its rate hikes after recent bank failures led to potential credit tightening. In addition, Novogratz said that the clearest trade is to continue to be long gold, the euro, Bitcoin and Ethereum, which should perform well if the Fed stops raising interest rates and then cuts them. If interest rates fall again, Bitcoin will be in the "best position." If the Fed continues to cut interest rates, he expects Bitcoin to reach $40,000.
Billionaire legendary investor Stanley Druckenmiller recently (April 24, 2023) revealed in an interview that he has shorted the US dollar, predicting that the Federal Reserve will soon have to cut interest rates to combat the economic downturn. This move could be very beneficial for cryptocurrencies such as Bitcoin, Ethereum, and XRP, as a weaker dollar typically leads to increased interest in alternative assets.
The world is changing, is BTC turning into digital gold?
From a macro perspective, the current trend of Bitcoin and its relationship with the Federal Reserve are certainly worthy of attention, but the impact of the geopolitical situation cannot be ignored. Against the backdrop of the Federal Reserve's interest rate hikes and the game between major powers, the probability of the collapse of the national currencies of some small countries and regions is gradually increasing under the influence of economic, political and other factors. In order to keep wealth from shrinking, Bitcoin is becoming a safe-haven asset, and this demand is increasing. Even in the United States, with the recent bankruptcy of a series of banks such as Silicon Valley Bank, many high-net-worth individuals have suffered heavy losses, and they have also begun to turn to Bitcoin.
On March 17, Bloomberg reported that several investors plan to raise $100 million to launch a Bitcoin Opportunity Fund. Cory Klippsten, one of the partners of the fund and CEO of Swan Bitcoin, an automated Bitcoin savings plan provider, said: "The recent banking crisis has highlighted the demand for Bitcoin. Everyone needs some money that they own and control."
Judging from the transaction data, the market demand for Bitcoin transactions increased significantly during the period when the US bank went bankrupt. Kaiko data shows that as of March 15, as the price of Bitcoin once exceeded 26,000 USDT yesterday, the daily Bitcoin transaction volume of centralized exchanges (CEX) exceeded 20 billion US dollars (USDT and USDC trading pairs), setting a 4-month high since the collapse of FTX.
From the research on the correlation between BTC and gold, as people's demand for Bitcoin as a safe haven increases, the correlation between Bitcoin and gold is also increasing. Bankless said in a research report: Since the beginning of the crisis, the correlation between BTC and Nasdaq has changed, while the correlation between BTC and gold has strengthened. This seems to indicate that Bitcoin is transforming from a technical game to real digital gold. This is a major shift in the way Bitcoin is viewed and traded. Bitcoin not only prevents institutional failures, but also serves as a hedge for its holders to prevent currency depreciation caused by a significant increase in the money supply, such as what we have seen since the creation of the Bank's Regular Funding Program BTFP. Investors have gained from holding BTC during this crisis, which increases the likelihood that they will take similar actions in the next crisis.
Network value supports BTC price increase
Although we have discussed many cyclical and macroeconomic influences above, returning to the essence, this article believes that the real internal factor that can drive the continued rise in Bitcoin prices is the increase in network value, which is also the essence of on-chain data that we want to explore. We have previously published an article "Bitcoin's "New Culture" Movement Promotes Web3 Prosperity and Promotes Three New Narratives of the Bull Market". At present, the migration of the NFT ecosystem on Ethereum to the Bitcoin network is the main driving force for the increase in Bitcoin's intrinsic value. It is also under this impetus that Bitcoin prices have received substantial support.
New market demands are still entering the Bitcoin network, and the demand for text inscriptions has risen significantly recently. Glassnode (@glassnode) tweeted earlier: One way to measure the growth of market demand is the value of the fees that investors are willing to pay for processing transactions. Currently, the 90-day SMA of fees exceeds its annual average, indicating that new demands are entering the market.
Glassnode tweeted on April 26: After a brief drop in inscription utilization, the number of daily Bitcoin inscription transactions has rebounded sharply, recording an ATH of 193K inscriptions minted in a single day. This led to an ATH in the daily transaction count share, with 40% of transactions related to inscription files. However, despite the increasing presence in inscription transactions, the proportion of total block size related to inscriptions has been declining. This is due to the increasing popularity of text-based inscriptions, whose data footprint is significantly smaller than their image counterparts.
How will BTC develop in the future?
Overall, there are still many factors that affect the future trend of Bitcoin, and the end of May will be a very important time point. In addition, investors should also pay close attention to the data on the Bitcoin chain, which is an important indicator for observing its market demand. In addition, as a new asset with relatively sufficient market competition, technical analysis of Bitcoin also has a strong guiding significance, and many influencing factors are also included. At present, MA65 (near US$26,800) is a very important support. If it falls below, Bitcoin will most likely enter a deep correction.