This week in Crypto
Consolidation and re-accumulation or a macro trend reversal from bull market to bear? This remains the key question at the mid-point in this current calendar year with now just over a year since the last BTC halving event.
As the second successive red monthly candle closes out and we start a new trading month, BTC has remained pinned below the 200-day moving average for over 2 weeks now. Does this present the buying opportunity of a lifetime as BTC fulfils the S2F model target and heads for $200k+ midway through a bull market? In doing so it would likely result in dragging the entire market up with it. Or are we set for further price declines as the monthly MACD/LMACD starts to roll over, following the weekly MACD/LMACD which is already in clear negative trajectory.
A thought we have been developing here is that perhaps the days of continuous, almost predetermined bull markets are over as more numbers of ‘’sophisticated’’ investors enter the market looking to front run the halving cycles that have played out twice before. This theory isn’t groundbreaking, it’s simply that the market is getting more efficient and intelligent about the asset class and basing investment decisions around the halving cycles that are clear known events in the future. If this thinking is largely correct then as a result, the expected cyclical returns over the anticipated 4-year timeframes are likely less reliable, predictable, and less obvious as the psychology of the market shifts from predominantly retail (less sophisticated) driven cycles in 2013 and 2017 to an institutional driven cycle in 2021. Institutional money behaves very differently to retail and will typically make longer term investments that are less emotionally driven or easily shaken out.
So, is the bull market over? Zooming out and framing this question over a 10-year period then the answer is a clear no. Is the bull market over for the next 3–6 months, then looking at basic TA, which has recently worked over and above on-chain analysis, then the answer is probably yes. Adhering to the theory that the market will continue to repeat the predictive format of the past cycles maybe the downfall of many leveraged portfolios. The next halving event will be around spring 2024 and institutional money entering the market will be very aware of this fact and will be investing with this in mind today rather than waiting to place bets 6 months out from the deflationary event. This longer term, ‘’smarter’’ behavior may provide a damping effect on drawdowns and avert prolonged bear markets leading to shorter cycles, with the post Dec19 cycle being a good example of a series of cycles within the typical macro 4-year cycle.
Whatever the outcome, it is clear that price action for the largest digital asset by market cap, BTC, has taken many by surprise since its $64k all time high and although we certainly remain bullish in the medium to long term, the prospect of a multiple month consolidation and continuation of price declines looks likely when simply looking at TA. Away from TA, should sentiment improve with news of high profile adoption by the market or Central Banks taking a more favorable stance on Bitcoin, we could see a swift return of investors’ appetite and TA become less reliable.
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Despite the current bearish sentiment, it’s worth remembering that the macro backdrop to the entire crypto industry remains fantastic. Gold and silver, after months of corrective consolidation, have both started to move higher in anticipation of sustained inflation that is starting to materialize across Government data across the globe. Money that is allocated to gold can also move to Bitcoin as the digital gold narrative remains strong. Both silver and gold charts look super primed for significant gains this decade with the gold chart appearing to be printing a decade long cup and handle pattern which if concluded would drive prices of gold to a technical target of $3,000 an ounce.
Investors across the spectrum are learning quickly that the fiscally driven Biden administration is hell bent on spending their way into the midterms with policies that invest heavily into the US infrastructure and policies focused on closing the painfully obvious inequality gap. A combined $8.2 trillion is proposed to be spent by 2031 which when combined with generalized inflationary pressures across all other major central banks, creates exceptional conditions for metals and the inflation hedge narrative of Bitcoin and possibly Ethereum as EIP 1559 rolls out in the coming months. There is strong media coverage of the spending which does eventually ring warning bells with even the least sophisticated of investors.
Zooming out further, it’s worth also remembering during these temporary bearish crypto conditions that there is a combined ~$100 trillion of bonds yielding less than 2% with a further ~$18 trillion yielding negative rates. US interest payments on debt are a staggering 10% of GDP and once you include the enormous entitlement programs in the US this number rises to 70%. Therefore, as inflation continues to bite and we expect to see significant rises in credit market yields, it is almost impossible not to expect yield curve control to be implemented by the Central Banks in some form of or another. They are painted into a corner and there are few options left.
Even if we don’t see a US Bitcoin or Ethereum ETF anytime soon and even if adoption slows as ESG concerns dominate the crypto narrative, the reallocation of the vast sums of capital held in the low yielding bond market will have to take place. There will be little choice from Portfolio Managers with hurdle rates that must be achieved for the capital they manage. Governments will demand yield curve control from their respective Central Banks which will result in bond yields artificially pinned below where markets need them to be to balance the inflationary pressures that we are starting to see take effect. As yields rise, Central Bank will have little choice than to deploy whatever tools they have to keep lending rates low in order to finance the debt that drives their policies, the alternative will have potentially devastating consequences politically and economically. Fiscal spending and reelection via securing a strong midterm in 2022 are likely very central to the formation of Biden’s fiscal policies, even if he isn’t entirely aware of what is going on. If (or rather when) implemented, yield curve control should be very accommodative for precious metals, commodities and crypto prices which we believe will all stand to gain significantly as this decade plays out. Short term bearish, mid to long term bullish is already becoming a meme for good and justified reasons.
“Personally, I’d rather have bitcoin than a bond,”
-Ray Dalio, CIO Bridgewater Associates
In summary, it is easy to get dragged into the anxiety of short-term volatility within crypto but the fundamental reasons that drive the existence of the market remain strong. Very strong.
