After an incredibly volatile week, Bitcoin heads into the weekend with great uncertainty over the price. There are many bullish events happening in the markets at the moment but one major bearish event is overshadowing them all.
New legislation in the USA?
As Donald Trump gears up to leave the White House, one of his final orders to his organisation appears to have been to rush through legislation for Cryptocurrencies that requires all self hosted digital wallets to have KYC (Know Your Customer) Identification attached to them somehow.
Now I could talk for days about how such legislation is not possible to implement, police or proceed with but ultimately there is such a fundamental misunderstanding of how much power the state has over Bitcoin that no doubt they will try and rush it through and it will be quickly undone again by the next president, because, to put it simply, nobody can enforce such legislation, it is not possible.
Bitcoin’s big buyers
On my YouTube Channel I have been discussing all week how Bitcoin on the surface has so many good things going for it. For example MicroStrategy is selling $550 million dollars of convertible senior notes. These notes are essentially company bonds that pay the purchaser 0.75% Interest Compound every 6 months. Michael Saylor, the CEO of MicroStrategy, plans to use the capital raised from this to invest the whole $550 million into Bitcoin.
It seems to be commonplace these days among the wealthy that they must allocate a portion of their wealth to Cryptocurrencies, as just this week we have seen the founder of Ex social media giant ‘Bebo’ invest 25% of his net worth into Bitcoin. He is not the only one however as MassMutual just today purchased $100 million of Bitcoin. On a smaller scale, many mid-size family offices have been making multi-million dollar purchases of Bitcoin because Bitcoin is now in the accumulation phase.
Where next? Retail vs institutions
The price of Bitcoin currently resides just under the $18,000 level. In the short term this may prove problematic with there being a strong possibility of a dip down to $16,400. If the price of Bitcoin were to go so low it would be bought up not by retail but by institutions as we have witnessed the amount of exchange held Bitcoin continue to fall whereas the amount of Bitcoin held by Grayscale, the largest institutional Bitcoin fund, has continued to rise throughout 2020.
There has been a clear shift in the market: retail is bearish and institutions are bullish. Retail wants to buy cheaper Bitcoin and institutions are quite happy to buy at these levels. Ultimately with so many large players priced in so high, it seems unlikely that Bitcoin will have a huge correction in price. We are still experiencing price discovery – we have very little data on Bitcoin above $14,000 as it has spent less than 1% of its existence above these levels. Because of this, Bitcoin will likely remain trading between $16,400 and $19,600 for the foreseeable future…