For Bitcoin and the larger crypto ecosystem, this summer wasn’t a particularly warm one. In fact, a series of bankruptcies and scandals by major players crashed the ecosystem and prices plummeted.
Bitcoin price has fallen by roughly 13% from the start of August and the overall market cap for cryptocurrencies declined by 8.1% to $992 billion in the same period, based on data from Coinmarketcap.
About the only bright spot in the dark of a crypto winter was Ethereum’s ether, whose price rallied mid-month after a date for The Merge, when its blockchain moves from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus mechanism, was announced. However, even that cryptocurrency is down on a month-to-month basis from July.
Will September signal further capitulation by bitcoin and cryptocurrency markets?
What Will September Bring?
The prognosis does not look good. While bitcoin price charted its own course during its initial years, it’s fate has become more intertwined with broader macro-economic forces in recent times. These forces include the Federal Reserve’s manipulations of the US economy, the investing landscape for risky assets, and economic data.
For example, the pandemic’s stimulus spurred bitcoin and crypto prices to new highs. Analysts also attribute the current slump in its price to the Fed’s interest rate hikes. The Fed Chairman’s speech at the Jackson Hole symposium spells a continuation of bearish sentiment for bitcoin because it means interest rate hikes are here to stay, at least, for the foreseeable future.
Not that this should be bad or new news for experienced crypto traders. Historical bitcoin declines in the month of September have averaged 8.5% since 2017. According to data from Bloomberg, the number of puts (an options bet that bitcoin price will decline) for a $15,000 strike for bitcoin price is second highest for the month of September. The floor price for the cryptocurrency’s price range is $18,000 for this month. Either way, it means that traders are betting that bitcoin price, which has been hovering in the $19,000-$21,000 range, will fall even further this month.
CME’s Bitcoin futures contracts for September expiration are also trending downward. At the end of July, they were changing hands at $23,405. A month later, they settled at $20,065.
Investors Are Betting On Ether
Investor enthusiasm for Ethereum’s transition, and subsequent decline in energy consumption, is extremely high and some are even betting that a “flippening” will occur. That is, ethereum will overtake bitcoin in market capitalization. But another (or, perhaps, the same) set of investors are piling into short perpetual futures contracts for Ethereum’s ether ahead of its transition to a PoS consensus mechanism. This might probably be a hedge for investors against their long positions for the same asset, writes an analyst at research firm Kaiko. In the long run, those shorts might be good news.
“When you combine these closed out shorts with a removal of $40 million of daily miner selling as a result of a move to proof of stake, you could have a rather rosy outlook for ETH in both the short and long term as two forces of massive selling pressure are lifted,” writes Conor Ryder, analyst at Kaiko.
What About Bitcoin’s Fundamentals?
There is, of course, the case that bitcoin’s own fundamentals could upset the anticipated price declines. In the past, technical developments within its ecosystem, such as the advances in the Lightning Network, and characteristics of its network, such as its difficulty levels, have pulled investors into its orbit.
But the chances of a surprise this time around are remote. Over time, as the investing landscape for bitcoin has become more mainstream, the state of its network has become less important to investors than it was previously.