Is Bitcoin’s short-term bearish signal a weak argument?
2020 has been a year of reckoning for Bitcoin, with the world’s largest digital asset now able to establish itself in conversations involving traditional macro assets.
After concerns of recession surfaced towards the start of the year, Bitcoin rallied briefly before the market crash of March took down most of the global financial markets, including the cryptocurrency market. However, Bitcoin soon became one of the first asset classes to bounce back within a 30-day period.
BTC’s price was driven by liquidity crunches and the bullish sentiment accompanied by the halving, making investors more vocal about addressing Bitcoin as an inflation hedge.
Now, according to a recent post by Messari, with Bitcoin reaching its next phase of adoption, it is imperative to understand how cryptos could be correlated to other assets under these new-found macro characteristics.
Bitcoin halving carried more noise than significance
Without misconstruing the importance of the halving, Messari’s Qiao Wang suggested that the event generated more noise as the reduction in supply was insignificant relative to the trading volume generated.
The major signal of macro-characteristics seemed adequate after prominent hedge fund managers such as Paul Tudor Jones went public and stated that Wall Street could be witnessing the birth of a new store of value. He also added that a minor percentage of his assets were in Bitcoin as well.
Such remarks from Jones underlined Bitcoin’s proficiency since the start of 2020, and not just the rally that took place right before the halving.
With the Federal Reserve’s trillion-dollar stimulus in place, one that will supposedly offset the credit contraction in the economy, Qiao hopes that it would create a positive wealth impact on Bitcoin.
Hence, the post suggested that short-term bearish concerns for Bitcoin were rather unlikely.
Derivative Markets’ impact remains key
Now, the above-illustrated arguments were accurate in terms of trading volume because of Bitcoin’s derivatives industry. Although Bitcoin currently lacks the same intensity in the on-chain metrics during the first week of May, it is important to note that this is the first ‘aftermath’ to any Bitcoin halving, one wherein a robust market for Bitcoin Futures and Options exists.
In the past, market investors and traders could only express their interest in Bitcoin through trading in the spot market, but the playing fields have changed now. Now, firms have the option to hedge or speculate. They have the ability to trade a derivate rather than the underlying, so they are able to express, both positive and negative views, with respect to Bitcoin’s price action.
With growing institutional participation in the space, once Bitcoin breaks away from its current correction phase, the asset could possibly end the year on a higher range than 2019’s yearly high of $13,800.