Miners and Investors have “Great Confidence” in Bitcoin’s Future But Backwardation Calls for Price Drop

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In April, the price of Bitcoin remains stagnant, trading in a tight range between $6,750 and $7,350.

Currently, we are trading under $6,800 with the market sentiments of “extreme fear,” as per the Crypto Fear and Greed Index. The index currently has a reading of 15, slightly above 11 recorded during the sell-off in mid-March.

The good thing is Bitcoin has found a “higher floor,” said Jeff Dorman of Arca. Given that the cash on exchanges currently is at their highs and sentiments are still near their all-time lows with the leverage at two-year lows, “it is VERY hard to short risk assets into a wall of cash right now, including Bitcoin. Prices can certainly go down, but it would not be surprising if they keep melting up.”

Investors Shifting to Longer-term HODLing

Bitcoin’s lack of activity is happening just about 25 days from the halving which has the investors taking the HODLing approach.

When it comes to the BTC balance on exchanges, from the high of 2,412k BTC in January this year, we have fallen about 10% to the low of 2,190k BTC last seen in June 2019 on exchanges including Binance, OKEx, Bitfinex, Bitstamp, Bittrex, Coinbase, Huobi, Kraken, Gemini, Poloniex, Luno, Hitbtc, and Bitcoin.de.

“Investors are withdrawing Bitcoin from exchanges – potentially indicating a shift to longer-term holding strategies,” noted Glassnode.

Epic difficulty adjustment coming as hash rate nears ATH

Just like investors who have taken to HODLing indicating their confidence in the future of Bitcoin, miners are just as confident as the hash rate is yet again reaching towards its all-time high. The hash rate of the network is down just 6.7% from its ATH in March.

The rising hash rate means positive difficulty adjustment. And we would be seeing an “epic” difficulty adjustment in the next five days.

This means, “miners have great confidence and are investing billions in new mining hardware. Yes some small miners with old equipment and expensive electricity will stop, but the industry as a whole is getting larger, more professional and stronger, and so is bitcoin,” said analyst PlanB.

The analyst said this is “great” that the efficient miners are investing billions in new mining hardware. As for its effect on the price, it would be indirect one through the stock-to-flow as “if blocks would come in too fast, S2F would rise too fast, and investors/price would not have time to keep up. DA keeps btc money supply nice and predictable.”

Backwardation Calls for Cautious Tone

Amidst this positive development, the price of bitcoin futures is in backwardation meaning currently the price of the underlying asset is higher than the price in the futures market.

This has been while the open interest in the Bitcoin futures market started slowly rebounding this week. “Bitcoin futures open interest is timidly rebounding one month after the historic 40% one day sell-off,” noted Skew Markets.

Bitcoin futures contracts for June 2020 are currently at $6,725 on CME and at $6,755 on ICE’s Bakkt.

Bitcoin perpetual swaps however are trading at a much lower price. According to the data provided by Skew Markets, the lowest is on BitMEX at $6,665 followed by $6,668 on OKEx, $6,683 on Huobi, $6,690 on Deribit, $6,707 on FTX, and the highest on Kraken at $6,721.

These low prices suggest speculators are expecting lower prices in the short term. “A break below $6,500 level will likely lead to another round of liquidations and send the price towards the $6,100/ $6,200 area,” said Denis Vinokourov, head of research at crypto investment brokerage Bequant.

“A break below will be particularly painful,” for bulls he said because there isn’t much support until the $5,000 zone as such calling for a cautious tone which is supported by futures’ shift into backwardation.

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