First Mover: Reminiscing on Pre-Pandemic Bitcoin as Rally Stalls

Bitcoin (BTC) was rising for a fourth straight day, though in a repeat of last week's action the cryptocurrency struggled to push above $20,000 after its months-long rally from a low around $5,000 in March.

"The level of $20,000, which is commonly equated with bitcoin's all-time high, represents a massive psychological barrier and could likely require a lot of force to break through," Mati Greenspan, founder of the foreign-exchange and cryptocurrency research firm Quantum Economics, wrote in his newsletter.

In traditional markets, Asian stocks fell the most in two weeks but European equities were steady. U.S. stocks pointed to a higher open after a four-day slump. According to Bloomberg News, investors were pricing in optimism about a vaccine rollout while harboring doubts on the latest efforts by U.S. lawmakers to negotiate a new stimulus bill. The so-called third wave of the coronavirus is leading to new lockdown measures. Gold strengthened 1% to $1,846 an ounce.

Market moves

(Editor's note: This is the second installment of First Mover's recap of how the bitcoin market evolved over the course of 2020 and what it means for the future. Today we cover January and February, just before the fast-spreading coronavirus began to take its toll on the global economy, sending markets into a tailspin and leading to an unprecedented financial response from governments and central banks around the world.)

Trillions of dollars of money-printing this year by the Federal Reserve and other central banks have galvanized bitcoin's use as a hedge against currency debasement by investors from both cryptocurrency markets and traditional finance.

But even before the pandemic-related economic stimulus hit global markets, economists were already openly speculating whether the U.S. dollar could survive another decade as the world's dominant currency for international payments and foreign reserves.

Historically, after all, a catalyst always led to one currency supplanting another as the world’s most important medium of transaction, unit of accounting and store of value. The U.S. dollar had emerged as the world’s leading currency during the early 20th century when it took over from debt-strapped Britain’s pound; a century before that, Holland’s guilder was undone by the French Emperor Napoleon’s invasion.

In early 2020, China's proposed digital currency was seen as a potential threat to the greenback, and former Bank of England Governor Mark Carney had gone so far as to propose a "synthetic hegemonic currency," potentially provided "through a network of central bank digital currencies."

“There’s a lot of discussion of substitutes for the dollar as the global reserve currency,” Bill Adams, senior international economist for the U.S. bank PNC, told CoinDesk around the start of the year.

But based on officials tallies of the dollar's share of global foreign reserves, the U.S. currency looked as strong as ever.

It didn't take long for the bitcoin market to get a jolt – after a U.S. drone strike killed a top Iranian commander during the first week of January, fueling speculation that heightened geopolitical turmoil might spur demand for the cryptocurrency. Bitcoin jumped to $7,300, as analysts said it might serve as a safe-haven asset similar to gold, whose value is expected to hold in times of geopolitical or economic instability.

The flap soon faded from the news and crypto traders turned to what they thought would be the bitcoin market's marquee event of the year – the once-every-four-years "halving" that would take place in May, where the pace of new supply of cryptocurrency issued from the Bitcoin network gets cut by 50%. It's stipulated in the 11-year-old blockchain's underlying programming.

From December through February, Google searches on the term "bitcoin halving" doubled in a month to the highest levels since 2016, and some enthusiasts even created a dedicated website, bitcoinblockhalf.com, to count down the remaining days, hours, minutes and seconds until it happens.

Cryptocurrency lenders reported a quickening pace of customer activity, in some cases more than 10 times the loan growth reported by big banks like JPMorgan Chase. The traditional financial companies were tethered to the broad economy, where U.S. growth had slowed to a 2.3% expansion in 2019 from the 2.9% clip in 2018. (A newly launched futures contract focused on the U.S. presidential election, launched by the cryptocurrency exchange FTX in early February, suggested Donald Trump had a 62% chance of winning.)

Crypto traders bandied about analyst predictions the halving could send prices skyrocketing to $90,000 or higher.

They had no idea, of course, how dramatically the events of the ensuing months would reshape the global economic outlook. By late February, traders saw clearly just how far bitcoin was from being a safe haven – as prices tumbled alongside U.S. stocks as authorities globally struggled to stem the spread of the coronavirus beyond China. U.S. Treasury bonds, seen as a traditional safe-haven asset, rallied, as did gold.

Bitcoin is "not the same as owning Treasury, and not the same as owning gold,” the cryptocurrency analyst Greg Cipolaro told CoinDesk on Feb. 24.

Jeff Dorman, chief investment officer of the crypto-focused firm Arca Funds in Los Angeles, raised the prospect of a separate potential catalyst for higher bitcoin prices: Monetary-policy easing by the Federal Reserve to stimulate coronavirus-infected markets.

“I don’t expect bitcoin to trade as risk-on or risk-off asset,” he said. “But over a longer period of time, anything that’s inflationary, or said another way devalues other currencies, strengthens the purchasing power of bitcoin.”

That view would take hold in the bitcoin market over the rest of the year, attracting the notice of mutual-fund companies like Fidelity Investments and BlackRock, hedge funds including Tudor Investment and more recently the 169-year-old insurance company MassMutual.

Prices have nearly tripled in 2020 to near $20,000.

Iran rarely came up again in bitcoiners' conversations about the market, and these days, there's barely any market talk about the halving. Now, it's all about the money printing. Questions remain about the future of the dollar.

Coming Wednesday: The coronavirus hits, and bitcoin prices tank – until the Federal Reserve arrives and embarks on the biggest money-printing episode of its 107-year history.

- Bradley Keoun

Bitcoin watch

Bitcoin again failed to hold gains above $19,500 early Tuesday, possibly due to profit-taking by large Asia-based investors, according to one analyst.

In the two hours between 4 a.m. and 6 a.m. coordinated universal time (UTC), the cryptocurrency fell from about $19,500 to about $19,050. An increased inflow of coins onto the crypto exchange Huobi Global, which has a Hong Kong presence, was observed before prices began falling.

"A total of 2,013 coins were transferred to Huobi in blocks 661,425 to 661,430 just 15 minutes before the price dip,” said Ki Young Ju, CEO of CryptoQuant, adding that block number 661,425 carried 1,017 coins, the highest single-block inflow on Huobi since Nov. 30. Monday saw 8,836 BTC arrive on Huobi in total, with a mean transaction of 4.5 BTC, the highest since March 2018, according to CryptoQuant.

The uptick in the average size of exchange deposits indicates that larger investors were transferring their coins to Huobi and may have liquidated their holdings around $19,500, a level that has acted as stiff resistance of late.

At press time, bitcoin has rebounded to near $19,300, and the path of least resistance for the cryptocurrency remains to the upside, according to analysts. However, forcing a breakout above $20,000 in the short term may prove to be an uphill task for the bulls, since there are sizable sell orders open in the approach to a new record high spot price.

“There are still offers above $19,500 up to $20,000,” Patrick Heusser, head of trading at the Zurich-based Crypto Broker AG, told CoinDesk. “The US-based cryptocurrency exchange Coinbase shows 700 bitcoin for sale right at $20,000, but all other exchanges show some offers up there as well in the region of 200-300 coins.”

- Omkar Godbole

Read More: Bitcoin May Have Hit Wall of Profit Takers Around $19,500

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