Bitcoin investors are feeling deja vu as the setup for the next bull run takes shape

Published Sun, Jul 16 20237:25 AM EDT

Bitcoin has had no shortage of good news over the past month — from the BlackRock bitcoin ETF application , to the first case the SEC has lost in its efforts to regulate crypto by enforcement, and the somewhat comforting June inflation data . Still, it just can't seem to break above $31,000. It barely moved before or after CPI data was released this week — and for the third month in a row. And even though it rallied 4% after Ripple's partial victory Thursday, it gave all of those gains back the following day and finished the week just under the flat line — for its third down week in a row. The dollar index, which usually moves inversely with bitcoin, also hit its lowest level in more than a year last week, and bitcoin didn't budge. Investor confidence is at a new high, however, but it's more than an adrenaline rush. Many traders are drawing similarities between bitcoin's behavior today and its moves in the lead up to the last halving, when the coin was still recovering from the big crypto crash of 2018. "In 2019, we experienced periods of strength, followed by pullbacks," said Andrew Lawrence, co-founder and CEO of custody firm Censo. "It wasn't until the bitcoin halving a year later, in the spring of 2020, that we saw a market recovery transform into a sustained rally. Something similar is playing out again this time around, and next year's halving will likely mark the beginning of the next rally." BTC.CM= 1M mountain Bitcoin has struggled to make a significant break above $31,000 for the past month The halving is an event that takes place when the reward for mining bitcoin is cut in half, as designed in the Bitcoin code, to reduce the supply of the cryptocurrency. It historically takes place about every four years and has set the stage for new bull runs. The next one is expected to come in May 2024. "Bitcoin clearly bottomed late last year, and now we're in something of both a recovery and accumulation phase," Lawrence added. Q3 volatility and GBTC on deck The third quarter of the year is historically the weakest for bitcoin . Its average third-quarter gain going back to 2014 is just 4.67%, according to CoinGecko, and it's posted a positive third quarter for only four of the nine in its lifetime. Bitcoin is about 95% off its 2022 low of just below $16,000, and it's only two weeks into July. Investors tend to expect seasonal gains in the fourth quarter, which has brought bitcoin a 93.38% return on average since 2013. In the meantime, market observers expect volatility, but say the trend is pointing towards strength. The SEC vs. Ripple is a "bellwether case" whose outcome will be "instrumental in shaping future U.S. crypto regulation" and provide a tailwind for the bitcoin price, Cantor Fitzgerald said Friday. The increased regulatory clarity that comes from it could boost the likelihood of spot Bitcoin ETF approval, it added. The Ripple case also gives the industry hope that the SEC "takes its foot off of the enforcement pedal," Canaccord Genuity said. Investors also have the decision on Grayscale's lawsuit — which contests the SEC's decision to deny the conversion of its Grayscale Bitcoin Trust to an ETF — as another key catalyst to look forward to this summer. "With liquidity conditions remaining weak and the macro picture still uncertain, we wouldn't be surprised to see crypto assets become more volatile in the short-term, but any moves to the downside should be viewed as a buying opportunity for crypto assets and crypto-related stocks," Chase White, an analyst at Compass Point, said in a note Friday. Sell pressure coming from miners With the Bitcoin halving – as well as an increase in price and activity – miners are racing to add more computational power, also known as hash rate, to their operations. To do that, they've been selling their bitcoin to fund operations. In many cases it's the best option for raising cash , since equity prices are relatively low and high interest rates make them unlikely to borrow money. Last week, selling volume by miners hit its highest level since March 2019 last week , according to Glassnode, and bitcoin's hash rate reached an all-time high. "Bitcoin miners are top suspects for pressuring bitcoin's upside potential as they have been sending their bitcoins to exchanges at an unprecedented pace since the end of May," said Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank. "To make things worse, bitcoin's mining difficulty has hit an all-time high this week, making it more difficult and potentially less profitable to mine bitcoin." Miners' profitability depends on how difficult it is to mine bitcoin. The network has an algorithm to regulate this. "Until the next difficulty adjustment, which will happen in about two weeks, miners' selling pressure will likely continue," Hasegawa added.