veDAO Research Institute: Behind the BTC Surge, Is a Bull Market Coming?

Author: veDAO Research Institute

The price of Bitcoin has reached its highest point in 17 months, the highest level since May 2022. This surge has caught many off guard, and with the steady rise of the "king of cryptocurrencies," it has brought a bullish atmosphere to the crypto market. So, what are the reasons driving this surge? What does the future hold for BTC?

Previously, the veDAO Research Institute mentioned that although fake news caused BTC's price to experience a rollercoaster ride, market sentiment is positive, and the subsequent trend is expected to improve. In this article, the veDAO Research Institute will present the reasons behind the recent BTC surge and analyze the future trends.

Reasons for BTC Price Increase

Considering that the crypto market is easily affected by volatility, one single factor cannot be regarded as the sole reason for the surge. In the past few days, BlackRock's BTC spot ETF appeared on the DTCC website, was briefly removed, and then added back, which is also considered one of the reasons for this surge. In addition, there are some more significant factors:

BTC Halving Approaches

There are less than 6 months until the BTC halving. The cryptocurrency community expects this event to kick off the next bull market cycle. According to analysts like Michaël van de Poppe, now (6 to 10 months before the BTC halving) is the best time to invest in altcoins, and venture capitalists are eager to start securing funding.

While investors are counting down the days in anticipation of their investments appreciating, BTC miners are worried about the event. The miners' concerns stem from the fact that the event will halve the mining rewards, reducing them from 6.25 BTC per block to 3.125 BTC. However, for investors, the halving event is valuable because it reduces the growth of newly mined BTC. Over time, miners' operating costs are also increasing. Specifically, mining infrastructure is becoming more complex and expensive. Others complain about rising electricity costs, while U.S. miners may face a 30% tax, which raises further unease. This is because BTC hash power (the computing power required for a computer or hardware to solve different hash algorithms) is primarily concentrated in the U.S.

U.S. Banking Crisis and BTC

The U.S. banking crisis that occurred in March this year has become a boon for BTC and the crypto market. One of the most important reasons is the lack of correlation between cryptocurrencies and the U.S. stock market. Although the banking system has stabilized relatively since then, the current market conditions again suggest that a similar scenario is forming.

U.S. Banks Hit Again

The four major banks on Wall Street—Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS), and Bank of America (BAC)—are currently at their lowest levels since the banking crisis. Their year-to-date performance shows that their stock prices are at their lowest, even lower than in March this year. Citigroup's stock price has dropped 14% since the beginning of the year, and Goldman Sachs has seen a decline of nearly 13%. Morgan Stanley's losses exceed those of the other two, having fallen 16% this year, while Bank of America leads with a 23% drop.

Cryptocurrencies and U.S. Banks Show Negative Correlation

Although the current state of the U.S. economy does not support a bullish narrative for banks or the stock market, the situation in the crypto market is quite different. Currently, BTC shows a significant negative correlation with the S&P 500 and Nasdaq indices, at -0.8 and -0.78, respectively.

In March, as banks faced immense pressure, the price of BTC rose alongside other cryptocurrencies, and coincidentally, BTC is rising again now. This has led to other altcoins also increasing, pushing the total market capitalization of the crypto market to $1.244 trillion.

From this perspective, the losses of U.S. banking institutions are transforming into profits for cryptocurrency investors, indicating that the flow of funds into this sector is not solely influenced by the U.S. However, the ongoing losses of banking institutions may not be the only reason for BTC's rise.

Behind the Israel-Palestine Conflict: U.S. Treasuries and BTC

Arthur Hayes, co-founder of BitMEX, recently stated that the current economy is affected by "global warfare," which has catalyzed the recent sell-off of U.S. Treasuries. As Treasuries are no longer considered safe, investors are choosing BTC and gold as alternative investment products.

Since mid-2022, the yield difference between 2-year and 30-year U.S. Treasuries has turned positive for the first time.

Arthur Hayes elaborated on the potential impact of the current tensions in the Middle East on financial markets, pointing out that as the U.S. government continues military aid to Israel, this will lead to the sell-off of U.S. Treasuries. He explained, "If you are a long-term holder of U.S. Treasuries, the most concerning thing is that the U.S. government does not think it is spending too much. If U.S. defense spending enters an absurd mode, there will be trillions of dollars borrowed to support the war machine, which will require the government to sell more long-term bonds to absorb funds, and global distrust in U.S. Treasuries will further increase. This is why bonds are being sold off, and yields are rising."

As the "Israel-Palestine conflict" and the "Federal Reserve (FED) pausing interest rate hikes" push U.S. Treasury yields to a 16-year high, Arthur Hayes believes that when long-term U.S. Treasuries no longer provide safety for investors, they will seek alternatives, with gold and BTC being the preferred assets in this context. Arthur Hayes believes that the rise of BTC and gold is a response to the sharp decline in long-term U.S. Treasuries, indicating that this is not speculation about whether ETFs will be approved, but rather a reaction to the future depreciation of the dollar and high inflation caused by war. He also mentioned another reason for the bond crash: as the Fed's interest rate hike cycle comes to an end and the U.S. economy remains stable, investors will have less motivation to hold long-term, leading to the sell-off of U.S. Treasuries.

BTC Price May Rise Due to Other Factors

A group of key investors may also be one of the reasons for this surge. Since September 21, whale addresses holding 100 to 1000 BTC have been accumulating BTC. Over the course of a month, this group has increased its BTC holdings by 50,000 BTC, worth $1.7 billion; this has raised their holdings from 3.85 million BTC to 3.9 million BTC.

BTC Trend

As of the time of writing, the price of BTC is $34,572, and due to the strong market momentum, it may rise further. It remains at a mid-to-high level in the market, with the chart showing an assessment from the low point at the beginning of 2023 to this year's high of $35,184.

The price of BTC has doubled from the closing price of $16,542 on December 31, breaking through the 61.8% Fibonacci retracement level of $28,067 during the rise, which is a key retracement level. The strong momentum of this rebound has also surpassed the 78.6% Fibonacci level, reaching $31,197.

The pressure from increased buying volume may push the price of BTC to continue rising, with a bullish target of $35,000. In this case, the most reasonable target would be the $35,184 level at the top of the Fibonacci chart.

However, if profit-taking begins, the price of BTC may still experience a downward trend. In this case, the support level for BTC may be around $31,197, or more likely around $28,067. In the worst-case scenario, the price could drop to the level of $25,869.

Conclusion

As the price of BTC continues to rise, market sentiment is clearly high. It can be said that multiple factors, including the upcoming BTC halving, pressure on the U.S. banking sector, and rising U.S. Treasury yields, are driving this price increase. Although there may still be fluctuations in the short term, in the medium to long term, the price of BTC is in an upward channel. For investors, now remains a good opportunity to position in BTC. As the halving effect gradually unfolds, BTC may usher in a new bull market cycle, which is worth looking forward to.