Recent bounce of the Cryptocurrencies specially Bitcoin off the lows has been significant for a couple of reasons – First, it seems to be signalling a possible bottom that has evaded the primary digital asset and has been the case of much speculation lately. Secondly, the Market dominance of Bitcoin, a metric which describes the market share of any particular digital coin as compared to the total market cap of the cryptos, has spiked to 45.7% at the time of writing.
Being a technical trader I have always been attracted to the Data Driven side of things but in this case there some fundamental factors in play as well like any other asset class in the financial markets. With the explosion of the Alt.coins since late last year, Bitcoin had carved a kind of correlation with the other coins, like Greenback (US Dollar) has with the other Majors (Euro, Yen etc.) in the traditional Fiat currencies. This relationship basically meant when the Cryptos would do well the BTC dominance would drop since people opt for other riskier & upcoming digital assets in the class, however, whenever the bearish sentiment took hold in the Cryptoverse the Crypto kingpin would see a rise in BTC dominance. This worked pretty well till the recent bounce in the Cryptos – the correlation seems to have broken out of this pattern and despite the bullish sentiment across the board the BTC dominance instead of dropping has risen significantly. This would mean that there is either a significant influx of institutional investment or revived faith in the Pioneer digital coin or BOTH. I will come to that a little later but first let’s take a look at the Market Share chart of the Top 4 Cryptos courtesy of Flippening Watch.
Although you can see in the long-term that Bitcoin’s dominance is down significantly but back in the days there were very few coins to make a case for a lower BTC dominance. When the Cryptos peaked in Dec. 2017 & early 2018 market share of Bitcoin had dropped to almost 30% – needless to say it has recovered almost 50% from that. Now let’s talk a little about the price action to supplement this thesis of Bitcoin being at the top. Looking at the daily chart of the Bitcoin one can see that it has broken the ceiling of the downward sloping bearish channel on an accumulation of volume. Long bullish green candles give credence to the bottoming case, however, the confirmation will come from the break of $7800 resistance level below which BTC is currently consolidating.
Coming to the other side of the story now – the fundamentals. Three important developments have taken place which support the case that Bitcoin is here to stay.
- Lightning Network: The biggest criticism that Bitcoin has had to face has been one of scalability and the high cost of transactions. The Segregated Witness (Segwit) upgrade which was implemented in Aug. 2017 proved to be controversial as it split the Bitcoin developers community. At the end it was incorporated but failed to make a significant impact. Than in March this year an off chain solution called the Lightning network was introduced on the Bitcoin Mainnet whose purpose is to provide an alternative digital highway for processing transactions faster by not clogging the Bitcoin blockchain. Lightning network is still in the beta testing phase but developers are confident that it is a big step forward in providing the solution for the scaling problems.
- Schnorr & Bitcoin Optech: Most significant upgrade since the Segwit, which has been in the making since 2012 finally seems to be taking shape as revealed by the influential bitcoin developer Pieter Wuille. Schnorr aims to address the issues of scaling & privacy by introducing a new signature scheme in which multiple signatures would be aggregated into one to generate cryptographic hash keys resulting in decreasing the block size, thus increasing the transaction capacity by 25-30%. Concurrently, a team of Bitcoin developers called the Bitcoin Operations Technology Group (Bitcoin Optech) has assembled under the umbrella of a non-profit organization backed by bigwigs of the industry like PayPal & cryptocurrency research firm Chaincode Labs. They will be looking into different avenues of addressing the scaling issue while helping companies with the integration of this technology. No wonder the diligent team of Bitcoin developers has sprung into action & keen on tackling the key issues of scalability, privacy & integration.
- Bitcoin ETF: The most important & perhaps the game changing development yet is the filing of the application for a fully functional ETF by the Chicago Board Options Exchange (CBOE) on June 26. The Winklevoss twins (owners of Gemini Exchange) & Bitcoin billionaires have been trying to get one approved since 2014. They along with SoildX were refused in 2017. Most people thought the billionaire brothers were rejected because of a lack of connections & being considered the “new kids on the block” who weren’t experienced enough to handle an ETF. However, SEC cited reasons like lack of regulations in the Cryptoverse and extreme volatility & unpredictability of the digital assets. So what’s different this time?
- CBOE is one of the most influential & biggest players in the game
- They are already trading bitcoin futures since Dec. 2017
- Joint Regulatory framework is expected to be announced in the upcoming G20 meeting
- And most important of all they are offering insurance to investors
Approval of the Word’s First bitcoin ETF would do wonders and provide legitimacy to Bitcoin in particular & Cryptos in general. ETFs function like an index fund tracking a basket of assets and gets traded like common stocks on any stock exchange providing higher liquidity. The launch of a bitcoin ETF would open the flood gates of institutional investment apart from the spiking retail interest.
I have got to say that I was skeptical myself if Bitcoin was going to survive the onslaught of the new smarter Crypto coins flooding the market but the pioneer has shown the way to lead once again. And all those predictions about Bitcoin hitting anywhere between $30,000 to $60,000 by the year-end might not seem that far-fetched & ridiculous after all. Interestingly enough, here is the result of the poll that I conducted on Twitter about what people thought about another price surge in Bitcoin. You decide.