Bitcoin – Did We Just See THE Dip?

What a ride the cryptomarkets have been over the break!  When we closed the doors on 23 December Bitcoin was trading at around AUD31,000 having already posted a 205% increase for the year per our end of year wrap.  Ethereum was just over AUD800 after 357% gains for the year.

From there BTC rose another 72% to AUD53,500 over last weekend and ETH rose 118% to AUD1,750.  Quite spectacular gains in a very short amount of time but still not an all time high for ETH.  The entire crytpo market cap surpassed US$1 trillion for the first time ever.  Such spectacular gains need some sort of rest and that came yesterday Australia time.

Bitcoin fell nearly 23% in AUD terms and ETH around 28%.  Whilst they are healthy falls, they weren’t of the magnitude a lot of the ‘smart money’ was waiting for, around 30+%, but awfully close.  As we write the markets are rebounding fairly strongly though it is too early to be sure we’ve already seen the bottom of this long awaited correction.  Alex Saunders of Nuggets News tweeted yesterday:

From that post it went on to nearly hit the line USD30,000 line but bounced off USD31,000.  As we write, in AUD terms, BTC has bounded off $41,000 and is already at $45,000 and ETH bounced off $1240 and already at $1390.

The difference with this rally as opposed to the 2017 is likely the sheer scale of institutional money in the space.  Each dip we have seen, hoping for a sizeable correction to buy the dip, has very quickly been reversed with analysts citing all that insto money on the sidelines employing algorithmic bots to buy every dip.

Whilst such seemingly nonchalant commentary on a nearly 30% correction may shock newcomers, such moves are ‘normal’ in a crytpo bull market and indeed welcomed by many as simply buying opportunities as they are actually healthy and reinforce the technicals that this is a real market with real, disciplined participants not some tulip mania as was the commentary in 2017.  

Again, however, what is demonstrably different about this bull market compared to 2017 is the amount of institutional money buying up Bitcoin in particular.  In 2017 Bitcoin was still a largely speculative investment for private individuals and FOMO certainly kicked in to see a huge blow off in 2018.  It was the first bull market for ‘the masses’ and the correction scared all the new weak hands off to the point of broad capitulation that lasted until last year.  But Bitcoin did not go away and indeed what last year also demonstrated to more and more of the so called ‘sophisticated’ money was that Governments and Central Banks around the world were on a terminally reckless trajectory of monetary debasement that had them looking for hard money alternatives.  Bitcoin had proven its resilience, had proven its immutability and became more apparent as a ‘pristine asset’ that sat well outside of those monetary actions.  The likes of Raoul Pal from a respected macro analyst perspective and MicroStrategy’s Michael Saylor from a corporate balance sheet perspective were pounding the table to buy Bitcoin and more of their colleagues were listening.  Enter PayPal’s bitcoin platform as well and Bitcoin became very very real and accepted.

We also saw another Bitcoin halving and the price action of Bitcoin, as supply was halved, followed beautifully that which preceded in each halving.  The economic science of stock to flow was proving to apply and this saw a whole lot of credibility reinforced to the more sophisticated participants.   You will recall from our early article on stock to flow that the model is predicting $100,000 BTC this cycle.

The size of the money ready to be deployed so completely dwarfs the retail investors of 2017 that we really do have a new paradigm.  The depth of dips may therefore also not be what is ‘expected’ from the past.  Whilst we may hope for 30% dips, yesterday may have been as close as we get.

Raoul Pal is too calling for US$100,000 BTC this cycle and even said ETH “might well go to US$20,000 this cycle”.  

Dips are relative.