While there is plenty of speculation as to why Bitcoin’s recent sideways movement has been happening, it is most likely a simple break in a continued bull market, Genesis head of market insights Noelle Acheson said in a research note this week.
With the recent finalization of the claims against disgraced cryptocurrency exchange Mt. Gox, some fear the bitcoin held by the trustee will be distributed and thereby depress prices. Acheson does not believe so, as the timing of such a move is still up in the air, and could be as far off as 2023.
“It is a known risk, most likely priced in,” Acheson said. “Since the timing could be a way off yet, it is probably overpriced.”
Another popular reason is the ongoing matter of legal action against Craig Wright, who claims to be Bitcoin founder Satoshi Nakamoto. Some fear more than one million BTC could be released as a result of the proceedings, but Acheson calls it a remote prospect for a few reasons. The judge has to first decide Wright is indeed Satoshi and if so determine if the late David Kleiman did help develop Bitcoin. Wright would also have to access the original address, which he has repeatedly failed to do, Acheson said.
Others worry about wording devoted to cryptocurrencies in President Joe Biden’s recently-passed Infrastructure Bill, but Acheson calls that old news.
“This has been well-known for some time, is factored into the market, and anyway it is likely that the crypto lobby and aligned politicians will be able to get the impractical wording changed,” she predicted.
Also factored into most stakeholder activity was the recent SEC decision to reject VanEck’s application for a spot ETF, Acheson said. That decision was not a surprise to most watchers.
“With no real reason for the market to be trading sideways to slightly down, it’s more likely to have been a natural breather, which is a frequent occurrence in any bull market,” Acheson said. “And yet the tailwinds for BTC are still intact. We still have strong development supporting adoption growth, as evidenced by the announcement on Friday that Square’s TBD is making rapid progress on the decentralized BTC exchange they hinted at a few months ago.”
On a macro level, there is continued evidence that Bitcoin behaves more like a risk asset than an inflation hedge, Acheson said. The most recent confirmation of that was Jerome Powell’s renomination as head of the United States Federal Reserve. While the price of gold dropped, Bitcoin’s rose.
“This links BTC to the outlook for real interest rates which, should they remain low or even negative for the short-term, would support further growth in risk assets,” Acheson explained. “The risk is that real interest rates could rise to a level that starts to choke off growth and liquidity while hitting asset valuations in the broader market while providing a more attractive alternative.”