A 2,700% Rally Incoming? Bitcoin Trading Below its Production Cost Ahead of Halving
The world’s leading cryptocurrency is yet again trading above $7,000, a crucial level for Bitcoin, around which we have been hovering for most of this month. But we are still down over 3% YTD.
According to trader Crypto Michael, having been rejected, Bitcoin’s next step could very well be below $6,800.
“Rejected at the level we've been watching. Still indecisive here. Could sweep the highs back again, before dropping down towards $6,800-6,860 and then I'd be looking to get some longs going,” he said. “Losing that area and I still believe we're seeing low $5ks.”
Yesterday, Bitcoin went down below $6,500 and in a sudden strong move went back above $7,100. Despite this, we haven’t been able to break out of the tight range, BTC is trading in April.
As such the market is not feeling positive about the flagship cryptocurrency surging higher yet. The current movement is actually looking like the one we saw at $10,000 with a bullish engulfing candle on the chart. This crash in mid-March had us to a low of $3,850.
“BTC The daily isn't really super bearish, we should've closed below $7000 for that but it's awfully close to how the $10k top played out. I'm still just chilling waiting for something more obvious,” said analyst DonAlt.
QE4 facing Off QH3
Currently, Bitcoin is trading below its production cost just 24 days away from its third halving.
Bitcoin’s Production Cost is an estimate of the global average US dollar cost of producing a bitcoin per day. Created by Charles Edwards of Digital asset management firm, Capriole Investments, this indicator uses the primary cost of operations as a base form to estimate the production cost of bitcoin.
“Bitcoin Production Cost is then found as (Daily Electrical Cost) / (Elec-to-Total Cost Ratio).”
Besides electricity, the major factor in Bitcoin mining operations, other costs including hardware capital expenditure, bandwidth, wages, rent, insurance, and cost of capital are also involved in operating a bitcoin mining business.
When the BTC price drops below Bitcoin’s production cost, it becomes unprofitable for miners to keep on mining bitcoin.
However, as observed by an enthusiast, the last time this happened near the halving, the price of bitcoin rallied 2,700%.
This halving also called quantitative hardening, next month will cut down block rewards from 12.5 BTC to 6.25 coins. Meanwhile, as we are currently seeing, the central banks around the world are injecting billions in liquidity into the market and firing up their money printer for quantitative easing.
Interestingly, the QE3 of $1.5 trillion in 2013 coincided with the bitcoin’s bull market and now QE4 is coming at a time when we are awaiting the QH3 of bitcoin.
— PlanB (@100trillionUSD) April 17, 2020
Some portion of this money being printed by the central banks is being given to the public. The Fed is processing stimulus checks of $1,200 ($2,400 for married couples) and $500 per qualified child while Japan will offer a cash payment up to 100,000 yen ($930) to every resident. Some of this money is even making into Bitcoin.
— Brian Armstrong (@brian_armstrong) April 16, 2020
During the ongoing market turmoil while global markets are looking at the central banks for bailouts and reporting losses in 1Q20, in the crypto market, firms like Grayscale investment had a record quarter.
Already, retail is buying the dip and with CME volume picking up and firms reporting heightened institutional interest, big buyers are just as interested in this hard asset.