In this segment we will analyze the price of Bitcoin for the month of May 2020. Just days from the next Bitcoin Halving, we will try to answer the question of the moment: Will the price of Bitcoin go up? First thing’s first
The term ‘Bitcoin halving’ refers to the scheduled reduction that occurs every four years in the issuance of new bitcoins. Its function is to control the inflation of the network. On May 12, 2020, the reward for mining a block will go from 12.5 to 6.25 BTC.
If you have any time trading cryptocurrencies, you will surely remember the last bitcoin halving.
Only two bitcoin halving have occurred. July 10, 2016 was the last. From 25 BTC that were generated per mined block (every ~ 10 minutes), we go to the current 12.5 BTC. Bitcoin was trading at $ 644 by then. Bitcoins’ perception of increasing scarcity played a key role in driving its price to $ 20,000. This happened after a few months of the event, in december 2017.
From the two halving events that have occurred so far, we can extract the following information.
This time the price rose 12% in the week following the halving to then form a range between $ 12- $ 13 and just had its first close above the range, I revisit its resistance that now acted as support at $ 13 and then continue climbing and discovering new historical highs.
Bitcoin price dropped around 30% in 24 days after halving, forming a daily support at $ 541 to continue its uptrend in the coming months.
Contrary to popular belief, there is no set day for halving events. The next Bitcoin Halving will occur when block 630,000 is mined. 629,000 blocks have been mined so far and every 10 minutes one is added. Therefore, Bitcoin Halving is estimated to occur on May 12, 2020.
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Just to XX days of the long-awaited halving, market participants are eager to discover what will be the reaction of the price of Bitcoin before and after this event.
For the first time, a halving event coincides with such a profound global crisis. Macroeconomic conditions, added to the coronavirus pandemic, raise doubts about whether this event will have the same impact as in the past..
On the other hand, there are the miners. Many argue that the capitulation of miners (with increasingly fewer resources and seeking immediate liquidity) could cause a decrease in the power of Bitcoin hashing. This drop would make it easier (cheaper) to mine bitcoin.
On the other hand, the arrival of new mining machines the market could keep them above the positive cost of mining and not be affected as badly by halving reward reduction caused by halving.
At the time of writing this report (May 5, 2020), Bitcoin appears to be recovering from one of the biggest declines in its history. After having recently touched the opening of the month of March (around $ 8,500), Bitcoin demonstrates once again its ability to turn the market trend in an instant. So far this year, Bitcoin has emerged 25% above its annual opening.
As tools for this analysis, we will continue to use the daily, weekly, and monthly time frames. This will give us a suitable macro perspective for both swing traders and for investors looking to have long-term market exposure.
The monthly framework helps us identify the areas with the highest liquidity. Bitcoin manages to close at $ 8,630 for the month of April, after having experienced one of its worst months since November 2018. The strength of the support is confirmed once again at ~ $ 6,400, the leading block in Bitcoin’s price action.
If Bitcoin continues its bullish recovery, The next key zone in this time frame is still the range between $ 9,300 and $ 9,600, which has not yet been overcome.
We zoom in a little and move quickly to the weekly chart. There, we can see that Bitcoin had its first close above the annual open, at $ 7,160.
In this time frame the rebound in the form of “V” of Bitcoin in the last weeks is more clearly noted. If Bitcoin continues its move and breaks the April high at $ 9,500, it will likely visit its previous highs (~ $ 10,500). That level is where the bulls (bull 🐂) were ‘hunted’ by bassists (bear 🐻), in his first attempt to break the weekly price (February 10).
In our previous report, We mentioned how Bitcoin was showing signs of wanting to visit the beginning of the bearish momentum it had during March. In this breaker – around $ 8,400- begins the gap in the futures contracts of the Chicago Mercantile Exchange (CME), tool used by many institutional investors who handle large amounts of capital.
These gaps -or jumps- are created due to the closing of that market during the weekend (participants cannot buy or sell). In the same way that happens with stocks and other tools of the stock market, creating a “gap” between the closing of Friday and the opening of the following Monday. The price usually re-visits those gaps and traders take it as a reference.
In the daily setting is where we truly appreciate Bitcoin’s recovery in detail. The price marked new highs repeatedly following a kind of ladder. This structure functioned as support whenever the asset managed to overcome a new level / resistance..
Those who understand the lower time frame structures were able to use this price action to their advantage, confirming a long signal.
Following Bitcoin’s steep drop on March 12 (over 40%), the asset finally managed to fill the gap created by CME’s futures contracts between $ 8,300- $ 9,050.
Regular readers of Bitcaribe’s blog are already familiar with the funding indicator. We usually use it within this time frame to identify potential buy / sell opportunities. In our previous report, we saw how funding was favoring bulls(bull 🐂) and increased the odds that the movement would continue. At the time of writing this report (May 5, 2020), funding is starting to change, but premium continues to favor bulls (bull 🐂). The perfect match for buy / sell is when the two favor one direction. In this case, the use of the indicator is considered 50/50.
Bitcoin has had a better than expected reaction to the macroeconomic conditions in which we currently live. Just 10% below its previous highs, the asset is following in the footsteps of one of the most important stock indices, the S&P 500, which is 13% below its previous highs..
The long-awaited halving is creating fomo (fear of being left out and missing something) in the new market participants. It is inviting the masses – with the same old narrative – to enter the cryptocurrency market.
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* The tickers used in the charts in this report correspond to BTCUSD and ETHUSD, from the Exchange Bitstamp.
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