RESEARCH
BEQUANT Crypto&Coffee
Bitcoin (BTC) posted modest gains on Monday as market participants were seen treading cautiously ahead of the key technical levels. The next big level is the 200-day moving average (DMA) level, which also coincides with $8,000 level. Heading into the final few weeks before the eagerly awaited Bitcoin (BTC) block reward halving, the risk is that the market will get somewhat jittery, evidently there is plenty to suggest the option call selling to fund downside protection. At the same time, a bullish structure was spotted on Deribit options trading platform, where June 10k-12k call spread bought x500, financed by selling June 5k put x500. Payout requires spot >10k and risking Bitcoin not <5k by Jun26th. At least looking at the skew, the market is sceptical of a significant bullish run, as noted in the past, downside protection flow has been sought after recently. The futures curve also continues to flirt in and out of contango, causing plenty of frustration for market participants.
Fundamentally, the hashrate remains in close proximity to previous all time high and it is worth remembering that before the global spread of the Covid-19 virus, there were numerous reports of new large-scale mining entities that were looking to go online at some point this year. While lockdowns that are in place around the world are unlikely to be lifted in a synchronous manner, the ecosystem that is responsible for the mining equipment manufacturing seems to be coping relatively well.
Also of note, CoinDesk reported that a Chinese city in the world's Bitcoin mining hub is publicly encouraging the blockchain industry to help consume excessive hydroelectricity ahead of the summer rainy season. Ya'an, one of the many cities in China's mountainous Sichuan province, a region that's estimated to account for over 50% of Bitcoin network's computing power, has recently issued a public guidance – likely in its first – to seize the "strategic opportunity of the blockchain sector" so that they can help consume the area's excessive hydropower electricity. Although not specifically mentioned in the guidance, Bitcoin mining is an activity in the blockchain industry that is notable for its reliance on the intensive usage of electricity.
The ongoing outperformance of Ethereum relative to Bitcoin is not to be ignored and the impact of soon to be obsolete mining hardware is yet to be fully understood. Ethereum Co-founder Vitalik Buterin said Ethereum’s soon-to-be obsolete mining hardware could be directed towards Zero Knowledge Proofs. At the same time, Ethereum Classic’s community is betting that some of the hashpower will be dedicated to mining ETC given the seamless transition. It also remains to be seen what impact the reduced selling pressure from Ethereum mining, proceeds of which likely ended up supporting Bitcoin to a certain degree, will have on Bitcoin going forward. Some of this supportive capital flow will soon no longer be present.
