Hodlers Power Bitcoin’s First Four-Month Winning Streak in Two Years
Bitcoin’s (BTC) price bounced back on Saturday, as crypto markets recovered from a steep selloff during the previous session. The leading digital currency returned an eye-popping 59% in May, rounding out its first four-month winning streak since mid-2017.
After experiencing a sudden flash crash late Thursday, the bitcoin price was on track to recover most of the large retracement. The cryptocurrency reached a session high of $8,624.72 on Bitstamp and was last seen trading around $8,535.
The daily chart shows strong underlying momentum for bitcoin’s price. Markets remain in heavy accumulation, according to the A/D line.
Prices are up around 1.5% over the past 24 hours, with trade volumes dominated by spot exchanges. BitMEX, the largest derivatives platform, processed 7.3% of the exchange-based trading volume, according to CoinMarketCap. At one point in May, BitMEX was processing roughly a fifth of bitcoin’s daily volume.
The derivatives platform was behind bitcoin’s pump-and-dump on Thursday. As Hacked reported Friday, BTC briefly traded above $9,000 for the first time since April 2018 before a mass liquidation event on BitMEX triggered a sharp decline. Bitcoin would eventually fall to the low-$8,000 region before recovering.
Buy-and-Hold Strategy Dominates
The accumulation/distribution line clearly demonstrates that investors intend to buy and hold bitcoin for the long haul. The A/D line not only confirms the bullish price trend, it suggests investors have been accumulating bitcoin since the beginning of March at the very earliest. Hacked predicted that 2019 would be bitcoin’s year of accumulation. Read more about it here.
Beyond this obvious technical indicator, research from Chainanalysis has concluded that 98.7% of bitcoin’s volume this year came from exchanges. Put another way, only 1.3% of bitcoin transactions this year have been conducted by merchants.
Basically, this means market participants are using bitcoin as a store-of-value rather than as a payment vehicle. It’s obvious to see why.
Bitcoin is an uncorrelated asset that is helping investors dodge economic and geopolitical risks in the form of trade wars, sluggish GDP growth and what appears to be a new era of quantitative easing for central banks. For that reason, bitcoin has emerged as the top-performing asset of 2019, vastly outperforming stocks, bonds, commodities and government-backed currencies. Read more: Five Reasons Why Bitcoin is Surging.
That being said, Chainanalysis said that bitcoin’s use case was still largely speculative.
“Bitcoin economic activity continues to be dominated by exchange trading,” Kim Grauer, senior economist at Chainanalysis, told Bloomberg in an email. “This suggests Bitcoin’s top use case remains speculative, and the mainstream use of Bitcoin for everyday purchases is not yet a reality.”
Although many have argued that bitcoin needs merchant acceptance to broaden its use case and appeal among the general public, it has already demonstrated utility as a store-of-value. It’s not yet obvious why bitcoin needs to be a payment method in order to flourish.
Dan Hedl, co-founder of interchange HQ, argued as much in a recent Twitter thread that asked users to give their unpopular opinion of bitcoin.
Using Bitcoin for anything other than SoV misaligns expectations and damages Bitcoin in the long term. For example, “coffee payments” side have so skewed expectations that people think Bitcoin isn’t successful unless it’s a cheap PayPal.
— Dan Hedl (@danheld) May 21, 2019
Twitter user Nic Carter of Castle Island Ventures chimed in with the following tidbits:
that 'mass adoption' isn't something to strive for
— nic carter (@nic__carter) May 20, 2019
Bitcoin's assurances are unnecessary for casual use. Bitcoin is a monetary scalpel, not a swiss army knife. its use at the base layer should – and will be – reserved for those narrow cases where it is relevant. other usage will be priced out anyway.
— nic carter (@nic__carter) May 20, 2019
Read more about the latest trends influencing crypto in our week in review: Altcoin Rally, Manipulation Erode Bitcoin Dominance Index.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Chart via TradingView.