Bitcoin’s Price – Forces Which Influence It

The nature of Bitcoin still remains unknown for many, it still holds secrets to some, and the others think that Bitcoin and the cryptocurrency is the greatest scam. But yet, news about Bitcoin is everywhere and Bitcoin’s daily trading volume has reached over $178 bln last year.

Being developed as the first low-cost cross-border payment means, which was supposed to be an alternative to a fiat currency, until today was entitled many times as a digital gold, an asset, a Ponzi scheme etc. Bitcoin drives it’s value from the funds which were invested into it, what keeps the price of Bitcoin, in other words, it’s value, is the costs associated with it. The proof-of-work consensus which is applied to Bitcoin and its popularity mainly drives its price.

But what causes the drop?

When Bitcoin is such a great tool for cross-border payments, what makes people or institutes sell it and drop its price?

Well, the first answer to this question is that no asset price can grow forever, eventually, those who purchased at a lower price will sell their Bitcoins to accumulate profits.

It’s August and Bitcoin hasn’t shown the anticipated jump to $50K USDT and the promising rise of July 21 was rejected by resistance at nearly $43K USDT. I use USDT to display the market data as in derivatives, USDT is mainly used, datafeed used is from a Licensed derivatives exchange – Bitget.

According to the technical analysis, this rejection was caused by dynamic and static resistances, whereas the RSI indicator reached it’s “oversold” level. As for fundamentals the rise and fall of Bitcoin were caused by various events which any Bitcoin trader should not neglect.

Let’s see some examples: A breakdown of Key events which influenced the BTC price.

1 – There was a mixed sentiment on the market during the release of the US Core CPI, PPI and Retail Sales data. Mainly these data were referring to the strength of the US dollar which was caused by the lower than expected CPI and Retail sales, which lowered the US high inflation fear. The US Dollar Index after the release of the data was up 0.01% and 0.98% the next day.

2 – June 24 and 25. Core durable goods orders, rise of GDP and a higher than expected Jobless claims. The rise of the US GDP gave another purchasing power to the US Dollar, while the higher jobless claims signalled the withholding of the purchasing power among the consumers, US consumers keep limit from spending and rather keep the USD, which also signals the containment of the inflation hike. The US Dollar index was up 0.09% and 0.03% respectively.

3 – An important release was made, which is the CB Consumer confidence which shows consumers trust in current economic activities. The positive confidence supported another consecutive gain of the US Dollar which was up 0.29% that day.

4 -5 – July 4, Independence Day, probably the confident speech of President Biden related to the US economy and it’s recovery led to this rebound. The oil to the fire was poured when Chinese central bank and Chinese authorities were reportedly taking actions against all operations related to cryptocurrencies.

6 – July 6-7-8, three consecutive days of important economic data from the US. ISM Non-manufacturing PMI, JOLTS Job openings, FOMC Meetings minutes and Initial Jobless claims. Both Job openings and Jobless claims were negative for the employment statistics but had a positive impact on DXY among investors. The FED policymakers stated that the economic growth and it’s future forecasts back up the decrease of the asset purchases, the FED also stated that it should lower to zero the money injection into the US economy.

7 – July 20 to July 31. The economic data from the US began shimmering negative outcomes to what the FED was calling as the economic growth as the Jobless claims rose significantly. Adding oil to the fire were lawful claims against one of the crypto exchanges Binance which is constantly being watched by countries watchdogs for its illegal operations.

These were the crackdown of the events which affected the Bitcoin’s price, but what does a technical analyst see when analyzing the chart?

First, what a technical analyst sees is a strong resistance at point 1, which is shown on the chart above, the second is the RSI indicator’s overbought signal. What that means is that Bitcoin purchases has reached their peak and buyers will look to selling it to get profits, and since the Bitcoin derivatives is widely spread across major US banks and on other exchanges globally, large cap investors will look into opening shorts on BTC (in derivatives a trader can make profit from buying and selling).

Once the price hits the support zone and RSI reaches its oversold area, Bitcoin experiences accumulation, this is where investors and traders will look into filling their portfolio with Bitcoin to gain profits later when the price increases. However the overall market sentiment, China bans, Binance bans and the growing strength of the US economy doesn’t allow the price to retest the resistance and grow further. Hence, Bitcoin tests previous local strong resistances, tests support zones as resistance and goes down again.

Since derivatives were introduced by crypto exchanges and CME and the Bitcoin futures trading was widely spread across the US and global banks, Bitcoin now is more volatile and is more sensitive to the global economic data. Large cap investors which inject their funds into Bitcoin futures trading are always keeping track of the US economic data and the volumes generated from derivatives trading surged heavily and will in the nearest future outperform the spot trading.

Although it might seem that the trading volume on CME is low, on the global markets, daily Bitcoin derivatives trading volume is more than $55 bln.

What is next for Bitcoin’s price?

As the chart below suggests, Bitcoin still hasn’t reached the accumulation zone, and the RSI’s buy signalling oversold levels.

However there is a large open interest at $37K and the impulse of July 21 looks very strong, hence Bitcoin might not go below $35K. Rather, it might test the 50-day Exponential moving average at levels $37000 – $37500 and continue the uptrend with a higher pace. The higher pace and large purchasing power is required to break the monthly dynamic resistance of April 2021, otherwise Bitcoin will struggle near the $40800 and if no impulse is shown there, it might resume the correction.

We might also refer to the similarity of price actions to calculate our estimate and make forecasts. There is a similar price action spotted on Bitcoin’s price chart and as seen on the chart, the uptrend resumed even though the RSI was in a mid range.

What could cause Bitcoin’s surge?

It pains to say but the spread of the Delta variant could support Bitcoin’s surge as it was during all lockdowns. Lockdowns per se hold consumers’ expenditures and increase a risk appetite among investors and traders, if lockdowns continue this will signal the delay of the economic growth forecasted by the FED and will decrease the Consumer confidence, which will be a major hit to the US Dollar index. Another fact that Bitcoin’s price may surge is the regulation and the ban of problematic exchanges which are constantly under investigation and of course the migration of miners from China to other countries, mainly the US, where in some states operations with cryptocurrency and its mining is regulated.

When the breakout from the dynamic resistance is confirmed, i.e. Bitcoin closes above $40800 or at any level above the dynamic resistance, the surge will most likely continue up to $47300 and $50800, where it might drop to the previous resistance to retest it as support and continue the uptrend.

My anticipation of the price to hit $72K by October remains but we should analyse the future price action of BTC starting from now. There will be a huge update to Bitcoin’s mainnet which should reduce the transaction cost and time and also implement NFT features to Bitcoin. With the growing demand of NFT’s and it’s large cap total volume capped, Bitcoin might dominate the NFT market as well and increase its overall market dominance.

For the time being, I highly recommend you to follow the US Economic data, follow the market sentiment and trade wisely. When trading refers to what large cap investors analyse and follow as they are in control of the market right now. Today we are expecting important data from the US – ISM non-manufacturing PMI and employment and the US Dollar index already reacted to the positive expectations and started to rise, so watch the release closely.