{"id":33299,"date":"2022-10-27T14:31:07","date_gmt":"2022-10-27T14:31:07","guid":{"rendered":"http:\/\/egrowonline.com\/?p=33299"},"modified":"2022-10-27T14:31:07","modified_gmt":"2022-10-27T14:31:07","slug":"the-unbearable-stability-of-bitcoin","status":"publish","type":"post","link":"http:\/\/egrowonline.com\/?p=33299","title":{"rendered":"The unbearable stability of bitcoin"},"content":{"rendered":"


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Bitcoin\u2019s doing fine, thanks for asking.<\/p>\n

Amid a shaky few months for markets, the world\u2019s favourite cryptocurrency has been remarkably stable, trading in the narrowest range since late 2020:<\/p>\n

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\"Line<\/figure>\n<\/div>\n

You might take a different view on this depending on priors such as whether you bought, when, and in what amount. Perspectives may include:<\/p>\n

It\u2019s also possible you haven\u2019t been following bitcoin\u2019s daily fluctuations closely because you\u2019re a grown-up who invests in solid assets like UK government bonds.<\/p>\n

Whichever way you approach it, for a currency that did this during the pandemic \u2014<\/p>\n

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\"Line<\/figure>\n<\/div>\n

\u2014 the flatness of recent months is a little \u2026 eerie<\/em>.<\/p>\n

Volatility\u2019s also muted:<\/p>\n

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\"Line<\/figure>\n<\/div>\n

What\u2019s going on? Morgan Stanley strategists Sheena Shah and Kinji Steinmetz have taken a look in a note published Thursday. <\/p>\n

Their top takeaway is that most of those who got into bitcoin since the start of 2021 are currently holding (or HODLering) the bag \u2014 and that the tokens themselves aren\u2019t moving around much:<\/p>\n

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Almost 1 year into the bitcoin bear market, most who bought bitcoin in 2021 are facing heavy losses and appear to be waiting for any rallies to close their position. A record number of bitcoin units haven\u2019t been used for any transaction in the past 6 months, currently at 78% of total and this number continues to rise (Exhibit 1).<\/p>\n

What this means, if we oversimplify a bit, is that those who bought\/received bitcoin more than 6 months ago are holding onto their positions, with some likely waiting for a price recovery. For the remaining 22% of bitcoin units held by the shorter term investors who did transact bitcoin in the past 6 months, estimates suggest their average breakeven price is just over $22.3k (+7% from current but was as high as 20% a few days ago, see Exhibit 2)<\/p>\n<\/blockquote>\n

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(Shah and Steinmetz note that there are couple of key caveats here: the first is that it assumes each wallet is owned by a different entity, the second is that it can\u2019t account for off-blockchain transactions.)<\/p>\n

As might be expected, that lack of movement has coincided with a downturn in activity on most exchanges other than market leader Binance, which has cut fees to drum up more business and now hosts about a fifth of all volume:<\/p>\n

\n\t\t\t\t \"\"<\/p>\n<\/figure>\n

The elephant in the room is of course ethereum, which had a publicity boost<\/a> last month when its blockchain survived an update<\/a>. Nice! ETH now tracks equity markets more closely than bitcoin, a dynamic that suggests it may be the more normalised risk asset of the two. Some in the market \u201cmay now start to question \u2026 the trading dynamics\u201d for bitcoin as a result of ETH move to a proof-of-stake model, Morgan Stanley says.<\/p>\n

The analysts note that bitcoin tends to find strong support at just above $18,100, suggesting traders are buying dips below this level.:<\/p>\n

\n\t\t\t\t \"\"<\/p>\n<\/figure>\n

Coverage over the summer identified $20k as a key support level<\/a>, below which forced liquidations of leveraged positions were needed. We\u2019d speculate recent dynamics suggest $18k could be a similar pain point. (If you\u2019re a hugely leveraged bitcoin whale, please get in touch.)<\/p>\n

Public bitcoin miners meanwhile aren\u2019t mining as much, which should also be providing some support. Indeed, they\u2019re having a extra torrid year (even by crypto standards) amid surging energy prices. The share prices of some of the biggest listed ones \u2014 Marathon Digital, Riot Blockchain and Core Scientific \u2014 have been dreadful:<\/p>\n

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\"Line<\/figure>\n<\/div>\n

(Core Scientific announced it may seek bankruptcy<\/a> while this article was being written!)<\/p>\n

It\u2019s circumstances in which highly-leveraged holders might want this kind of stability to be underpinned by serious, long-term investors holding BTC. Shah and Steinmetz:<\/p>\n

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As trading volumes fall and there are fewer market participants, intraday traders and market markets have an increasing influence on prices. Their activity is more likely to be impacted by technical price and momentum than say longer term asset managers.<\/p>\n<\/blockquote>\n

Company-driven bitcoin adoption efforts continue apace, encouraged perhaps by the UK installing its first laser-eyed prime minister<\/a>. MS\u2019s team is a little sceptical about how much any of that matters:<\/p>\n

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In recent months, traditional financial companies have increasingly been announcing new crypto products to offer their clients exposure to the markets and facilities to be able to buy, sell and hold the underlying crypto\u2026<\/p>\n

The companies are saying they have introduced the products due to client demand but looking at the recent flows in and out of exchange traded products and the trends for trading volumes described above, we continue to think that unless there is material upward price volatility it may be difficult to see that real demand pick up materially.<\/p>\n<\/blockquote>\n

Stability looks good, at least relative to what\u2019s happening elsewhere. But thinning volumes in a market that has no utility beyond store of value, where the actions of its few active daily participants are being determined by technical resistance and support levels, is not a symptom of robust health. Though we\u2019re far too jaded to say the best has passed for the mother of all cryptos, its flatlining after the plunge might signify nothing other than that it\u2019s now an asset class on life support. <\/p>\n<\/div>\n


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Bitcoin\u2019s doing fine, thanks for asking. Amid a shaky few months for markets, the world\u2019s favourite cryptocurrency has been remarkably stable, trading in the narrowest range since late 2020: You might take a different view on this depending on priors such as whether you bought, when, and in what amount. Perspectives may include: It\u2019s also […]<\/p>\n","protected":false},"author":1,"featured_media":33300,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[37],"tags":[50,1961,11997],"class_list":["post-33299","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bitcoin","tag-bitcoin","tag-stability","tag-unbearable"],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"http:\/\/egrowonline.com\/wp-content\/uploads\/2022\/10\/6db49514-8002-4c49-a523-c9bae2770833.png","_links":{"self":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/33299","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33299"}],"version-history":[{"count":1,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/33299\/revisions"}],"predecessor-version":[{"id":33301,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/33299\/revisions\/33301"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/media\/33300"}],"wp:attachment":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33299"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33299"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33299"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}