China’s war on Bitcoin mining and virtual currency transactions ramped up a gear this week, sending Bitcoin sharply into the red. BTC is now 22% down on seven days ago and trading just under A$42K (US$33K). Although Bitcoin is well down on its peak around A$84K (US$65K) in April, it’s still up on the A$39K (US$27K) it began 2021 at. Ethereum lost 26.8% this week, which means former crypto billionaire founder Vitalik Buterin, is down to his last $838M. However, given ETH started the year under A$1,000 (US$750), its current A$2,500 (US$1,800) price is still quite impressive. Everything else was down: Ripple (-31.5%), Polkadot (-37.8%), Bitcoin Cash (-27.3%), Litecoin (-28.9%), Chainlink (-29.5%), Stellar (-30.8%), EOS (-32.4%), Aave (-34%), Synthetix (-34.5%). MicroStrategy announced overnight it had bought another 13,005 BTC for around US$489 million.
PBOC bans Bitcoin… for real this time
Bitcoin fell 10% on the news last night that the People’s Bank of China had told the country’s financial institutions to stop providing any services related to crypto as it disrupts “the normal economic and financial order and breed(s) risks of illegal cross-border asset transfers.” It held discussions with the Industrial and Commercial Bank of China, Agricultural Bank of China, Construction Bank, Postal Savings Bank, Industrial Bank, and the Alipay Network and instructed them to block trading, clearing and settlement for crypto related transactions. “The PBOC crackdown is going further than initially expected,” said Jonathan Cheesman, head of OTC and institutional sales at FTX. “Mining was phase one and speculation is phase two.”
China ramps up mining ban
China’s Bitcoin mining crackdown intensified this week with authorities cutting power to 26 crypto mines in Sichuan. The Bitcoin hash rate is now at an eight month low of 91.2 Ehash/s according to Bitinfo.com, after peaking at 171 million Ehash/s in mid-May. Mining difficulty has already been adjusted downward twice and looks set to drop another 9.7% in a week or so, the first time BTC has seen three downward adjustments in a row since late 2018.
Even before the latest bad news out of China, things weren’t looking so hot for Bitcoin thanks to the dreaded death cross indicator, which has predicted four major crypto crashes, along with the 1974 and 2008 US stock market plunges. On a chart it shows the 50-day moving average line crossing below the 200-day moving average and is taken as a sign that demand and interest is drying up. While it often precedes a bear market, that’s not always the case. The death cross last year was followed by a 66% increase and a golden cross within 50 days, and in 2012 it took 90 days to hit the golden cross after it spiked 83%. Taproot upgrade, El Salvador’s adoption of BTC, and the embrace of renewable energy could all give Bitcoin a boost in the coming months.
World Bank says No
Following the lead of the International Monetary Fund, the World Bank is also unimpressed with El Salvador’s embrace of Bitcoin. It has refused the country’s request for help with the transition saying: “While the government did approach us for assistance on Bitcoin, this is not something the World Bank can support, given the environmental and transparency shortcomings,” a World Bank spokesperson said. Such environmental considerations haven’t prevented the World Bank from investing US$12 billion into fossil fuel projects since the Paris Agreement. In more positive news, 20,000 people in El Salvador trialled out Bitcoin payments using the Bitcoin Beach wallet and paid a grand total of $4.98 in fees between them. Interestingly, there are claims that by their own charter the World Bank must accept Bitcoin if it is a local currency of a member state.
Billionaire Mark Cuban has called for greater stablecoin regulation after he made a large investment into a stablecoin project called Iron Finance without doing enough research and the project went to zero. Kraken CEO Jesse Powell fired back, saying that a lack of regulation was not the issue: “Not doing your own research and YOLOing into a terrible investment because your time was worth more than your money is your problem,” he tweeted.
Around 140,000 Bitcoin will be unlocked from the Grayscale Bitcoin Trust between now and mid-July, with the biggest single day unlocking of 16K BTC on July 19. Between mid-April (when Bitcoin peaked around A$84K) and today, around 139.5K BTC has been unlocked, which could partly explain the subsequent price slide. Grayscale has also just announced it’s considering 13 new coins for its trusts including Curve, Internet Computer, Kyber, Ren, Solana, and UMA.
Bitcoin is on sale, get it cheap
Pantera Capital CEO Dan Morehead has told investors now is the time to buy Bitcoin in the latest newsletter. “For new investors, it’s best to buy when the market is well below trend. Now is one of those times,” he summed up in a tweet. “Bitcoin has only been this “cheap” relative to its trend 20.3% of the past 11 years.”
Stock to flow model creator PlanB says not only is Bitcoin still on track to hit US$135,000 (A$179K) by the end of the year, that’s his worst case scenario. The best case scenario is US$450K (A$596K). He attributes the current price action to “Elon Musk’s energy FUD and China’s mining crack down” and has indicated he believes 2021 will follow the “double top” price action of 2013, when it peaked at US$259 early in the year, lost 75%, then exploded to $959 before Christmas.
Are we bear yet?
While the sea of bad news is weighing heavily on markets this week, on chain analyst Willy Woo says we’re not in a bear market yet. He points out new buyers keep joining the network which helps support the price. Woo argues that stablecoin capital is rotating back into Bitcoin, strong hands are accumulating and the Bitcoin NVT Premium Z score looks positive: “Using NVT to value the network, we are statistically oversold from fundamentals at historic levels. Note we were devoid of a mania top before the sell-off. This sell-off happened when the price was well within fair value. So it doesn’t match the start of bear season.”
Until next week, happy trading!