Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Crypto Weekly: Bitcoin is close to a 2-year low
Mads Eberhardt
Cryptocurrency Analyst
Summary: Bitcoin has almost wiped out its return in the recent bull market as it nears a 2-year low, but a long-awaited decrease in the hash rate of Bitcoin offers miners some relief.
Bitcoin is close to a 2-year low price
As fear spread in early November following the collapse of the crypto exchange FTX, the Bitcoin price realized a new local bottom of about 15,500 (BTCUSD). The latter was nearly a 2-year low for Bitcoin. In the following weeks, Bitcoin recovered slightly before declining again, as it presently trades at 16,200. If Bitcoin were to go below 15,500 at this moment, it would trade at a 2-year low because time simply caught up with Bitcoin, as the latter surged throughout November 2020. Bitcoin seems to be trading in the range 15,500 and 17,000 for now, but in case Bitcoin breaks its support of 15,500, the next level of support is around 12,300.
In the recent crypto bear market of 2018 and 2019, the Bitcoin price bottomed out in December 2018 more or less exactly a year after hitting an all-time high in December 2017. In case it is to be repeated in this bear market, it should be true that Bitcoin’s local bottom was at 15,500, which price was achieved more or less exactly a year after Bitcoin’s all-time high in November 2021. However, this time around, given that the macro situation is much worse, the interest rates are rising, and the printers of central banks have run out of ink are not promising for the potential scenario that Bitcoin has already bottomed out.
Speaking of the past, Bitcoin greatly outperformed any other cryptocurrency in 2018. Yet, in the current bear market Ethereum has managed to keep up with Bitcoin so far. At the moment, Ethereum trades at around 0.072 against Bitcoin. The latter was more or less the average price of this trading pair in all of 2021. It seems the less issuance of new Ether following the Ethereum merge and the greater demand for Ethereum-based transactions due to a greater ecosystem are what keep Ethereum close to Bitcoin. This is particularly of interest in case we at some point experience a bull run similar to 2017 and 2021. In that case, Ethereum may greatly outperform Bitcoin. Ethereum trades at 1,170 (ETHUSD), still far from its 2-year low.
The Bitcoin hash rate offers miners some relief
We wrote last week about Bitcoin’s ever-increasing hash rate in the past year, although the Bitcoin price has been on a constant downward trajectory. This is contrary to what is expected to be the case, namely that the price and hash rate should be positively correlated, as miners can afford to operate more computational power in times with a high Bitcoin price. The lower price but higher hash rate has pushed many miners into financial trouble.
In the past week, however, miners could sense some relief on the horizon. Over the past week, the hash rate has decreased by around 10%, potentially decreasing further in the foreseeable future. This makes it more profitable for miners to mine Bitcoins and may delay consolidation between miners, which would make the network more centralized.
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