Bitcoin (CCC:BTC-USD) is stuck… and it’s China’s fault.
I’m kidding. Well, sort of.
Bitcoin really is stuck…
You can see how over the last two months it has traded almost entirely between $30,000 and $40,000. (Don’t forget that monster move from $10,000 to $60,000 that preceded it, though.)
And while I am kidding a little bit when blaming China, actions by the government there have definitely kept pressure on cryptocurrency prices.
Here’s everything you need to know about what’s going on and what it means for Bitcoin and altcoins…
Anyone who has followed the crypto markets for a long time is used to volatile trading and negative news out of China. To be fair, recent news has been more serious.
Authorities there usually just reiterate their ban on crypto, which started in 2014 and was further developed in 2017. All the while, they’ve done little to enforce it.
But it has become clear that China is going to enforce its ban on bitcoin mining, which is how new coins come onto the market. More than 25 miners in the Sichuan province were ordered to shut down in what’s now being called “the great mining migration.”
This resulted in a noticeable drop in the “hash rate,” which is the computational power on the Bitcoin network that provides security. This, in turn, corresponded to the price drop, which extended to basically all cryptocurrencies. (The orange line below is the hash rate, and the gray line is the price.)
A report from CryptoCompare also concluded that China’s crackdown resulted in crypto trading volumes falling more than 40% in June. Binance held its spot as the largest exchange by volume, and it saw a 56% drop. The second biggest, a Hong Kong exchange called Huobi Global, experienced a 40% decline in volume.
Amid all of that, I think miners in China were also forced to sell some of their Bitcoin to pay the costs of relocating their operations. Reports are that a lot of these miners are relocating to the United States — Florida and Texas are actively recruiting them — and Kazakhstan.
You’ve probably heard how Bitcoin mining uses a lot of energy due to the computer power required. And it does. The question is more how that energy is generated.
Is it through old fossil fuels that are bad for the environment? Or renewable energy sources that are not?
That’s where China’s decision gets puzzling. Authorities decided to enforce the ban on cryptos just as the country begins to roll out its centralized digital currency. Chinese authorities said the reason was the power used by miners in the Sichaun province.
But here’s the thing — that power was primarily hydro-electric, not carbon-based fossil fuels. It seems the enforcement is more about eliminating competition for the digital yuan than environmental concerns.
Whatever the reason, here’s the important takeaway: I think it is ultimately a positive that some mining assets are moving outside of China. There was far too much concentration of mining capacity there, so the migration will create a more decentralized network… which is a must for any true cryptocurrency.
The great mining migration is a long-term positive, and an analysis of exactly who is buying at these lower prices tells us perhaps even more.
The “weak” hands — newer individual investors who get scared easily by the volatility — continue to sell into “strong” hands. These are big money investors in for the long term.
It’s worth noting who some of those stronger hands are.
Cynthia Lummis is one. She is a Republican senator representing Wyoming, and she also presented at the largest Bitcoin conference ever last month. She took advantage of deeply discounted prices to add to her holdings after telling Fox News that she was “excited to buy the Bitcoin dip.”
And then there is Microstrategy (NASDAQ:MSTR). CEO Michael Saylor’s all-in experiment in Bitcoin will be either the single greatest treasury management strategy ever by a publicly traded company… or he may end up on the unemployment line.
Microstrategy most recently purchased $489 million in bitcoin at an average price of $37,617. Saylor’s conviction is so strong that he issued shares and debt to buy more. The company now owns 105,085 bitcoins at a cost basis of $26,080. I still look for bitcoin to head to $100,000, so I think he will end up on the right side of history for these visionary moves.
ARK Invest Founder, CEO and CIO Cathie Wood bought more than one million shares of Grayscale’s Bitcoin Trust (OTCMKTS:GBTC) and about 215,000 shares of crypto exchange Coinbase (NASDAQ:COIN) on June 22 — the day that Bitcoin dipped to $28,500.
Andreessen Horowitz, a private venture capital firm with roughly $18.6 billion in assets under management, initially wanted to raise about $1 billion for a new crypto fund. Well, the company doubled down and instead raised $2.2 billion.
Billionaire investor Steve Cohen says he is “fully converted” when it comes to crypto. He is chairman, CEO and president of Point72, which has $22.1 billion in assets under management. “I’m not going to miss this,” he said. “I already feel like I missed the first part of it, but I still feel like it’s early.”
And that’s precisely the message.
The crypto awakening that we’ve been talking about for months is still underway. And there is still time to make a lot of money.
Blockchain and cryptocurrencies — Bitcoin and the strongest altcoins — are transformative technologies. Such a massive transformation will take time.
They will change so much about our lives… from the big stuff like buying a home or paying your taxes to how you pay for a pizza and everyday goods and services.
Bitcoin may be stuck in the near term, but these lower prices are juicy buying opportunities. If Bitcoin does indeed make its way to 100K in the next 12 months as I expect… select altcoins should multiply even more.
On the date of publication, Matt McCall did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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