The strengthening dollar’s impact on Bitcoin
CoinDesk Learn Editor Ollie Leech describes what’s been happening with Bitcoin price action as the digital asset hovers around $56,000.
ADAM SHAPIRO: Good things might be one way to describe what Bitcoin investors who got in early are experiencing, even though it is trading down today. Bitcoin trades all the time. It never really stops. Let’s find out what’s actually going on right now in our crypto corner with Ollie Leech, CoinDesk learn editor. It’s good to see you, Ollie. And–
OLLIE LEECH: Good to see you.
ADAM SHAPIRO: –as you’ve shared with us, fourth quarter is usually a bullish time for Bitcoin. So I know asking the question, why is it going down, and the answer is because Y is a crooked letter, some people might say, but why is Bitcoin going down?Finance Morning BriefFree. Cancel anytimeNeed-to-know market information in your inbox daily, Monday – Friday. See latest
OLLIE LEECH: No, it’s– like you said, it’s a good question. This time of year, everyone’s looking, you know, rubbing their hands together, waiting for that rally to really peak. And, you know, there’s a number of things as always. Let’s start with a few generic fundamentals. Obviously, Bitcoin’s just recently hit an all-time high, as have a wide range of other cryptocurrencies. And, you know, whenever this happens, we usually see a lot of people take money off the table. It’s understandable to do that.
And so that may have started this kind of downtrend. But there’s a range of other things that are really starting to take hold of Bitcoin. Crypto quant analysts have said that, you know, the last three years, we’ve seen downtrending volatility around Thanksgiving. We’ve also got things like end of month rotations, option futures expiries, rebalancing. We’ve got strengthening dollar that was obviously having some impact on Bitcoin’s price. And we’re seeing that it’s trading at a 16-month high against the euro. So I think, you know, people could be cashing out into Fiat because of that.
But there’s two main things, actually, I think that’s really having an impact. And it’s causing this sort of prolonged down period. And that’s Mt. Gox creditors are actually finally looking to get some hands on money and about $9 billion worth of crypto assets are currently being recovered from the platform’s 2014 hack that’s going to be distributed back to victims of that soon. I think it’s panned for some time around the first or second quarter of 2022.
So, you know, a lot of concern about that. Obviously, these investors haven’t had– have been waiting seven years for this to happen. Bitcoin’s price at the time was around $340. So there’s a lot of expectation that there’s going to be a lot of dumping on the market. And with $9 billion worth of assets, you can understand why people are, you know, maybe pulling out early ahead of that sort of news. So that’s something to bear in mind.
And the Indian government is actually looking to move forward with plans to ban certain cryptocurrencies. And this is, again, something that will be causing a lot of FUD in the market right now. And people are going to be drawing out assets and waiting to see how that all plays out, although it’s kind of uncertain about how this new regulation bill is actually going to come out and how it’s going to impact the market. They’ve talked about banning private cryptocurrencies. And we’re not entirely sure what that’s going to extend to. So, yeah, it’s going to be interesting to see how that plays out right now.
KARINA MITCHELL: And regulatory concerns going forward, I think, will continue to be a big issue. And that’s why I think you’re even seeing some long-term holders now taking their profits and getting out, or taking some of their money out of Bitcoin. But what do you see? Are you bullish on the future? Because you hear one viewpoint, maybe not today, Bitcoin to the moon, and it goes to 100,000. So what do you see happening, let’s say, in the next six months to Bitcoin? And then, if the price does go up, how does that impact altcoins? Does it take those up as well? And are there particular altcoins that we should be looking at?
OLLIE LEECH: Well, OK. So, yeah. So I mean, you know, if we look at anything with cycles, how the crypto market cycles work, usually, we’ll see Bitcoin rise, and then we’ll see alt coins and Ethereum sort of lead the next cycle. And it’s always kind of once Bitcoin rises, it lifts– the rising tide lifts all boats. And as Bitcoin rises, it does lift the rest of the altcoin market. But then you might see, like we’re seeing now, you know, Bitcoin dominance down at 42%. Ethereum’s actually picking up and gaining on Bitcoin. So we’re seeing that market flip around at the moment.
So, yes. So those tend to happen quite routinely. And it’s something a lot of crypto investors are used to. Going forward in the next six months, I mean, you know, if we look back through seasonality and how these markets tend to operate through the next coming months, we usually see a rally up until Christmas. There’s usually a bit of a pullback around that time. We see a second spike around January. You know, if we look back to 2017, that’s exactly what happened.
And then we see kind of a sharp sell-off towards March, a brief pick-up in April, typically, and then another high in June before we enter that sort of bearish period over summer into August. So it remains to be seen. Obviously, the market’s completely different than it was in 2017. So that’s just something that we kind of use as a bit of a rough framework. But it’s, we’re just waiting to see what happens with so many different things right now.
SEANA SMITH: Ollie, one of the big headlines in the crypto world that got my attention this week was the El Salvador news and the fact that they have announced a Bitcoin city. I guess it was over the weekend. Allegedly, the city is going to be financed through cryptocurrency, so something that I would think crypto bulls are very excited about. But from someone who looks at these trends and looks at these big announcements, what’s your big takeaway from this idea?
OLLIE LEECH: It’s definitely an ambitious move. I mean, anyone looking at it, it’s a fantastic story. So I mean, they’re looking to build this next to a volcano, one of the island’s 20– one of the country’s– sorry– 22 volcanoes. Apparently, this one’s inactive. I mean, that’ll probably give the inhabitants some relief. You know, so many things that are quite interesting about this. You know, yes, so they’re going to build next this volcano. This volcano, they’re going to power the entire city with this geothermal energy.
They’re also going to build some mining infrastructure, so you can actually mine Bitcoin apparently through the use of this volcano. There’s going to be no tax, I think. I believe I’m right in saying there’s no income tax, property capital gains, or payroll. It’s just VAT at 10%. And apparently, the city itself is going to be shaped like a coin with a central plaza in the shape of Bitcoin. So it’s a bit wild. And I mean, I’d love to see it happen, but–
ADAM SHAPIRO: Would you buy it? Ollie, I just got to ask you.
OLLIE LEECH: Yeah.
ADAM SHAPIRO: It’s going to have junk bond status. I mean, this is like buying–
OLLIE LEECH: This is another thing, exactly.
ADAM SHAPIRO: –Enron with Argentine pesos right now. Why would you?
OLLIE LEECH: Yeah, I mean, again, the bond is a really interesting thing. So they’re going to have a billion dollar bond backed by Bitcoin. It’s going to have– it’s a 10-year bond denominated in US dollars. They reckon after 10 years of lapse, there’s going to be around 142%, 146% yield on this thing.
ADAM SHAPIRO: Mm-hmm.
OLLIE LEECH: Yeah, they’re also–
ADAM SHAPIRO: Mm-hmm.
OLLIE LEECH: –looking at $500 million worth of the money raised through the bond is going to be buying Bitcoin after a five-year lockup period. They’re going to sell that and actually give that back as dividends, some of the proceeds to these bond holders. So I mean, it’s very ambitious. Who knows how this is going to play out? We’ve seen Acorn try to do a similar thing in Senegal with the city. So, you know, people are doing this. This is– yeah. Who knows how this is going to play out? It’s a huge project.