The year just gone by would have ranked as one of the tougher for many people, and especially the markets. Having been impacted by the global pandemic of Covid-19, most markets, including the crypto markets, were plunged to record lows in March of 2020.
However, as 2021 crests and we enter January, the year has started off on a remarkably good note. Bitcoin has hit new all time highs through the latter end of January, and even topped an impressive figure of $34,000 — about 10 times its value in the low we saw March of last year.
It is not only crypto fans that have a reason to smile though as the4 stock markets also hit new highs as the year came to a close. However, for fiat and forex, things looked a little different as Covid-19’s impact was still being felt.
For commodities, there was relative good news though as the likes of gold and silver have not been impacted either way and have rather held their value in a time of volatility across the markets.
Bitcoin continues to grab the headlines though, and although it sounds like bad news, the fact that a supply crisis is looming for the top crypto is good news for those who have some of their portfolio in Bitcoin.
Other cryptos are also benefiting from the growing Bitcoin market, barring XRP. Ripple continues to face a looming lawsuit from the SEC and this is seeing the price of XRP fall and exchanges aim to delist.
The question is now whether Bitcoin will keep rallying in the short and medium term to set it up for a big growth spurt through the year. Additionally, many will want to see how the traditional markets continue to grow through the year and the residual Covid-19 impact. Read the rest of our weekly market research report to find out what is on the horizon.
New Year, New Markets
It was a great end for a challenging year in the markets. Recalling that both stocks and crypto markets plunged tremendously in March this year when news of the pandemic hit, both asset classes have recovered to end the year on a high note.
Both BTC and US stock indices closed the year at ATH. BTC in particular, already started welcoming the new year by smashing $34,000 over the New Year long weekend with successive quick moves on high volume.
Over at the fiat currency front, the USD continued to decline into the close of the year, with the DXY hitting a low of 89.4 before rebounding on the last day of the year to 89.9 after US lawmakers refused to approve the $2,000 stimulus cheques that President Trump proposed.
The $600 stimulus cheques however, are on their way to the US residents and should reach their bank accounts by 5 Jan.
The Pound moved higher after the Brexit deal was signed into law and GBP/USD maintained its breakout at $1.3550 and closed the holiday shortened week at $1.3660. The EUR/USD found $1.23 a bit difficult and closed the week a tad lower at $1.2260 as the USD managed to stage a slight rebound on 31 December. However, most experts expect the USD to continue weakening in 2021.
Gold, Silver and Oil remained range bound at the end of the year, with news of vaccination as well as more COVID cases offsetting each other. Experts expect Gold and Silver to fare well in 2021 with the weakening USD to still be in play. Both metals are welcoming the new year with higher moves, after the cryptocurrency market surged over the weekend. The USA opened the new year with yet another move lower.
The New York Stock Exchange (NYSE) announced that it will be delisting three China Telco Giants to comply with Trump’s Executive Order that imposed restrictions on companies affiliated with the Chinese Military. The 3 companies are China Mobile, China Telecom and China Unicom.
They will be delisted beginning January 7 and China has announced that it will take action against the USA for it. In the event China-US relations again become tense, the stock market may start some selling.
With traditional markets not doing much due to the year-end festivities, most activities centred on the cryptocurrency market with BTC making new highs yet again to start the new year at a new ATH of $34,750.
There are expectations galore for BTC to continue to rally higher in 2021, with even Elon Musk expressing an interest in cryptocurrencies, once again.The World’s largest asset manager, Blackrock, is hiring a VP for crypto asset valuation, showing increased institutional interest in the sector. With all these developments, 2021 is looking set to be the year crypto assets move mainstream.
Supply Crisis Worsens for Bitcoin
The supply crisis for BTC continues to worsen, with whales selling experiencing exhaustion. As can be seen in the below data plot, whale deposits on exchanges have started to decline rather significantly from highs made in mid-December, suggesting that there is lesser and lesser BTC sent by large wallets to exchanges for sale.
Other than this, other data sources point to an increasing amount of BTC that is becoming illiquid and has not moved out from its wallet for long periods.
According to an on-chain metrics provider, there are only 4.2 million units of BTC constantly circulating in the system for buying and selling, the other 14.5 million units are illiquid. Over the course of 2020, a total of 1 million additional BTC have become illiquid, implying that buyers are holding onto their BTC, refraining from selling. If such long-time holders continue to not sell their BTC, the dominant cryptocurrency would become scarcer and more difficult to accumulate.
To exacerbate the supply shortage, there is currently a shortage of ASIC miners for miners to purchase to be able to increase their BTC mining capacity. Typically, miners would sell their mined BTC and use the capital to acquire higher efficiency hardware such as ASIC miners.
But since there are no miners available to buy, miners may keep their mined BTC instead of selling. Other than not selling, miners may even resort to buying BTC from the market to improve their yield since the BTC price has been appreciating.
As such, the price of BTC is expected to rise phenomenally on the back of various parties accumulating it. Furthermore, central banks across the world are still expected to adopt loose monetary policies in 2021. This will drive more corporates to acquire BTC to protect against the debasement of their treasury balance.
We are already experiencing the buying force on BTC with its solid rise over the weekend, leading the rest of the crypto market up, especially the top 10 coins. With many parties trying to buy BTC, it may get harder to acquire BTC with the reduced number of sellers.
Over the new year weekend, 35,000 units of BTC were withdrawn from a US exchange, a sign that increasingly large volume purchases of BTC are moved from hot wallets to cold storage, intensifying the supply shortage since coins stored at cold storage are usually for long term investment not likely to be sold in the short term.
Most Crypto Assets Saw Big Gains, ETH Breaks $1,000
Difficulty in acquiring BTC may send some investors to purchase other crypto assets, driving prices of other crypto assets higher. Some investors may also buy other cryptocurrencies because they feel that BTC is currently overbought.
The final week of 2020 and first weekend of 2021 saw significant gains from other institutional favourites like ETH, LTC and DOT.
DOT doubled its price from $5.00 to a high of $10.5. ETH has passed $1,000 as exchange supply of ETH continues declining. Miners’ ETH stock has also decreased, signalling less ETH available for sale in the market.
With ETH 2.0 already launched, more than 1 million units of ETH have been locked up in staking, making less ETH available as liquid supply in the market, thereby causing a supply strain which drives up prices very fast as well.
The big move over the weekend has been across the board, with DeFi tokens also gaining around 20% on average.
XRP still Reeling from SEC Lawsuit
It wasn’t so positive at XRP however, with more exchanges announcing delisting or trading suspension post the SEC lawsuit. Coinbase, OKEX, OKCoin, Crypto.com, Binance US, and every other exchange with presence in the USA has confirmed that they will suspend trading of XRP, sending the price of XRP down to $0.19 at one point before recovering with the broad market to around $0.23.
However, Japanese exchange SBI asserts that XRP is recognised as a crypto asset in Japan, and that they have no plans to delist it. SBI is one of the working partners of Ripple.
Interestingly, some investors of XRP have filed a lawsuit against the SEC for manipulating the price of XRP by calling it a security out of the blue, thereby inflicting huge losses to innocent investors. The news didn’t manage to salvage the price of XRP though, with it still reeling at around $0.22. XRP will need the lawsuit to have a favourable ruling before it can see any sustained recovery.
Information provided in Flurex Option’s market report includes information provided by Kim Chua, Lead Market Analyst for Flurex Option, in addition to charts from various data sources.
About Kim Chua, Flurex Option Market Analyst:
Kim Chua is an institutional trading specialist with a track record of success that extends across leading banks including Deutsche Bank, China Merchants Bank, and more. Chua later launched a hedge fund that consistently achieved triple-digit returns for seven years. Chua is also an educator at heart who developed her own proprietary trading curriculum to pass her knowledge down to a new generation of analysts. Kim Chua actively follows both traditional and cryptocurrency markets closely and is eager to find future investment and trading opportunities as the two vastly different asset classes begin to converge.
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