Key Takeaways:
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Dormant Bitcoin holders transferring large sums to exchanges raise concerns about long-term trust amid growing concerns in regards to the potential impact of quantum computing.
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Strong inflows into Bitcoin ETFs didn’t lift sentiment, with traders as an alternative turning to fast-growing privacy coins like ZEC and DCR.
Bitcoin (BTC) has repeatedly struggled to maintain its price above $106,000 since early November, despite the S&P 500 being 1% below a brand new all-time high. Meanwhile, gold, the standard store of value, has erased its recent losses and is now trading just 4% below its previous record of $4,380.
Many traders say aspects unique to the cryptocurrency industry could affect Bitcoin's performance, but are they serious enough to forestall BTC from hitting $112,000 again?
US Dollar Index (left, red) vs. BTC/USD (right). Source: TradingView / Cointelegraph
The recent rise within the U.S. Dollar Index (DXY) against a basket of major currencies reflects renewed confidence within the U.S. Treasury's ability to deal with its fiscal challenges. When investors fear stagnant growth amid persistent inflation – a scenario also known as stagflation – the domestic currency typically weakens as monetary expansion becomes inevitable.
For this reason, traders often highlight the long-standing inverse correlation between the DXY and Bitcoin price. In contrast, the US stock market tends to profit from a stronger dollar and lower rates of interest. Reduced borrowing costs increase company valuation, while favorable exchange rates make imported goods cheaper when priced in local currency.
Companies pursuing Bitcoin reserve strategies resembling Strategy (MSTR) and Metaplanet (MTPLF) have been amongst the largest corporate buyers so far, particularly when their shares have traded at a premium to the underlying assets. The mNAV multiple captures this relationship and represents the worth of the Bitcoin held relative to the corporate's valuation.
The fall in the value of Bitcoin eliminates the motivation for corporations to issue shares
The recent downturn within the cryptocurrency market has largely worn out this advantage and removed the motivation for corporations to issue additional shares. At current price levels, any recent issue would dilute existing shareholders, making it an unattractive option with out a significant mNAV premium.
These corporations can still raise funds through debentures or convertible notes, but such financing is often less advantageous to investors. Debtors often demand collateral, which effectively reduces the quantity of Bitcoin that goes into an organization's enterprise value; This limits potential mNAV growth.
Investor fears intensified after long-term Bitcoin holders, including those from 2018 or earlier, began selling amid a 20% decline from the all-time high of $126,220. One high-profile case is believed to involve Owen Gunden, an arbitrage trader from the era of the failed Japanese exchange Mt. Gox, who reportedly owns greater than $1 billion value of Bitcoin.
Last week alone, Owen transferred greater than 1,800 BTC value over $200 million to the Kraken exchange. While it will not be unusual to see long-dormant addresses move funds, traders are wondering whether these transactions reflect waning long-term confidence, especially given growing concerns about quantum resistance and robust rallies in privacy-focused cryptocurrencies.
Zcash (ZEC) is up 99% within the last 30 days, followed by a 74% increase in Decred (DCR), a 37% increase in Dash (DASH), and a 22% increase in Monero (XMR). Despite net inflows into Bitcoin spot exchange-traded funds (ETFs) of $524 million on Tuesday, buyer sentiment stays subdued, meaning the likelihood of BTC reaching $112,000 within the near term is comparatively low.
Selling by long-time Bitcoin holders, continued U.S. dollar strength and growing interest in privacy-focused tokens are overall slowing Bitcoin's recovery, keeping prices below $106,000 and signaling that significant upside potential may remain limited.
This article is for general information purposes and will not be intended to constitute, and shouldn’t be construed as, legal or investment advice. The views, thoughts and opinions expressed herein are those of the writer alone and don’t necessarily reflect the views and opinions of Cointelegraph.
