A strong, month-long rally in Bitcoin (CURRENCY:BTC) is starting to exert noticeable effects on Canadian small cap blockchain stocks. This is welcome news for sector issues which has lost 80% or more in value since bitcoin prices crested last December.
Perhaps the most public face of Canada’s blockchain sector, Hive Blockchain Technologies Ltd., is showing the most pronounced sensitivity to bitcoin’s bullish posturing. Not only has the pure-play Ethereum and soon-to-be Bitcoin miner’s stock price reacted accordingly, volume is rising significantly. We can clearly visualize this investor positioning on the daily chart below:
A major reason for the renewed investor interest comes via two distinct catalysts acting in-concert: Bitcoin’s decisive breakout out from a 5-week trading range, and anticipation that a new Bitcoin ETF may be forthcoming.
The latter impetus was impregnated last week when it became known that crypto enthusiasts were flooding the SEC’s inbox with messages of support after an exchange sought approval to list a Bitcoin ETF. The Security and Exchange Commission (SEC) had been soliciting public comments as part of the due diligence process, which has aroused resounding feedback. The SEC’s decision to accept or reject the proposal is anticipated sometime in September.
Crypto participants are hopeful Bitcoin may rise significantly ahead of a positive SEC outcome; much in the same way Bitcoin skyrocketed ahead of the Commodity Futures Trading Commission‘s (CFTC) decision to allow Bitcoin futures trading last November. In the lead-up to that event, price soared almost 3-fold from November 12-December 12, 2017—the day BTC first listed on the Chicago Board Options Exchange.
Little did investors realize that by allowing unlimited free-floating derivatives to trade concurrently to Bitcoin exchanges, they were effectively killing the bubble. It essentially destroyed BTC’s minimalist supply base by providing short sellers and hedgers an extraneous vehicle in which to corral price. “Pumps” via direct crypto exchanges became harder to muster with futures supply gumming the market. It also served to crash Bitcoin volatility (now near 16-month lows), which was a necessary ingredient in the fomentation of blow-off tops.
In summary, low liquidity helped fuel the patriarchal crypto’s massive rise, while artificial supply helped tame it.
Regardless, should the SEC allow Bitcoin ETF to trade, it will be a net positive for the market the demand side of the market. Although nothing can ever put the simultaneous low liquidity/mania genie back into the bottle, BTC has matured beyond that stage. It more resembles a traditional supply & demand type of market, which competes for capital inflows like all others.
Thus, Hive Blockchain, Hut 8 Mining Corp. and select others are hoping to ride the next wave of market liquidity—wherever that may lead. Every dollar increase in BTC, ETH or whatever altcoin is mined is directly accretive to the balance sheet. With current prices rising and anticipated price outlook looking bullish (ETF prospects discussed above; BTC trading above 50 & 100-Day MA etc.), correlated juniors issues are reacting.
Midas Letter will have further coverage on Hive Blockchain and the sector as events warrant.
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