Bitcoin (BTC) is starting what will be likely a hectic week for markets as the United States begins its two-month presidential transition.
After Joe Biden was declared the projected winner of the U.S. presidential elections during the weekend, Bitcoin fell, but managed to avoid major losses — what’s next?
Cointelegraph takes a look at the factors set to influence BTC price action over the coming week.
U.S. election frenzy starts to bite
Attention remains firmly fixed on Washington as the aftermath of a highly contentious election begins to play out.
Experts had warned that market volatility was all but guaranteed once the result was in. Since this occurred over the weekend, Monday’s Wall St. open will be a source of interest for market participants.
At press time, Japan was leading the gains, with its stock market hitting a 29-year high on what the press is calling the “Biden bounce.”
Bitcoin, on the other hand, has stopped short of continuing last week’s gains and at one point hit $14,400 — $1,590 off its recent peak. Since then, BTC/USD has rebounded considerably, circling $15,250 at press time Monday.
Incumbent president Donald Trump has vowed to challenge vote counts and could yet cause further issues for Biden, leading to confusion over policy, which could yet rattle sentiment.
Zooming out, however, analysts frequently argue that in the long run, Bitcoin and gold as safe havens will ultimately win from the election, regardless of which candidate leads the U.S. going forward. The reason, among other things, is inflation.
As Cointelegraph reported, a speech last week by Jerome Powell, chair of the Federal Reserve, saw demands for further financial stimulus to enter the U.S. economy, raising debt and debasing the dollar.
“Bitcoin is the dominant crypto network - engineered to host the ideal safe haven asset & preserve monetary energy over long periods of time without power loss,” Michael Saylor, CEO of MicroStrategy, summarized in a tweet on Monday.
“That makes #BTC the solution to every investor’s store of value problem. Few understand this.”
Coronavirus mayhem throttles Europe
Accompanying the election fallout is the continued turmoil over nation states’ handling of the Coronavirus.
Europe and the U.S. have recently diverged in this respect, with the former succumbing to a wave of new lockdown measures that have met with considerable pushback from the population.
After showing off buoyant recovery statistics for Q3, many governments will soon be drawing another altogether less savory picture of their economies for Q4 as economic activity dives for a second time in 2020.
This opens up the possibility of history repeating itself for Bitcoiners. After March’s cross-asset crash and first lockdowns, Bitcoin bounced back from $3,600 to circle five figures in under two months.
As governments themselves repeated the controversial responses to the virus, analysts were already forecasting a strong year for Bitcoin in 2021. Among them, as Cointelegraph reported, Real Vision CEO Raoul Pal and Gemini exchange co-founder Tyler Winklevoss both predicted a new all-time high for BTC by Q1 next year.
Fear & Greed Index hits danger zone
In terms of current investor sentiment, however, warning bells are sounding as Bitcoin stays above $15,000.
According to the Crypto Fear & Greed Index, which measures market sentiment using a basket of factors, a correction is more than overdue.
Compiled as a score out of 100, the Index reached its highest reading since June 2019 on Monday — the time when Bitcoin circled its yearly highs of $13,800.
For Comparison, two weeks ago, the Index measured under 60 — firmly “neutral” territory — before the latest price rises upended sentiment.
The closer its score is to 100, the more likely it is that the market will correct thanks to a wave of selling, dragging the price down.
Noting the Index on Friday, Cointelegraph Markets analyst Michaël van de Poppe advised Twitter followers that he was eyeing a market entry point as low as $11,600.
“Decent weekly close, but below $16,000,” he added on Monday.
“Levels to watch; $13,700-14,100, $12,800-13,200 and $11,500-12,000 If the market starts to correct.”
Bitcoin closed Sunday with its third-highest weekly close in history.
Institutions stay record long BTC
Despite the volatile conditions of the past week, however, the weekend managed to avoid a significant “gap” opening up in Bitcoin futures markets.
These “gaps” appear when the end of one futures trading session is markedly different in price to the start of the next after a weekend.
Bitcoin has traditionally risen or fallen from its Monday position to revisit, or “fill,” such gaps. This weekend provided only a small one — between $15,455 and $15,635 — and BTC/USD moved quickly to fill it in early Monday trading.
CME Group’s Bitcoin futures meanwhile have seen record open interest in recent days, hitting $934 million on Friday with $764 million daily trading volume.
Enthusiasm has been tempered, however, by the latest commitments of traders (COT) report released Friday, which showed hedge funds being record short BTC at current prices.
At the same time, institutional investors remained record long, building on previous bullishness from late October.
Bitcoin supply shortage boosts prospects
Bitcoin’s run to $16,000 meanwhile opened up an increasingly popular narrative, which predicts further price rises based on a surprisingly simple and well-known equation — supply and demand.
After a wave of corporate buy-ins and increased sales from heavyweights such as payments network Square, attention is focusing on the fact that there is just not enough BTC on the market to satisfy incoming demand.
The situation will likely be exacerbated by PayPal, analysts say, which already has a waiting list for Bitcoin buyers for when it begins offering cryptocurrency facilities early next year.
Square alone, as Cointelegraph reported, already buys more BTC than miners produce. Going forward, the resulting supply squeeze can only realistically drive up the USD value of a Bitcoin.
As Saifedean Ammous, author of the popular book, “The Bitcoin Standard,” summarized on Saturday:
“Two ways to fix a money shortage: 1- Central bank provides liquidity 2- Number Go Up. There is no right or wrong way; there are consequences!”