You don’t want to miss this. The first of my three part interview with “The Bitcoin Standard” author Saifedean Ammous, was just released. It’s fantastic. Look for part two to be released this week.
The Bitcoin Halving turned out to be a non event. Except of course for all of the online parties. This is fantastic news for Bitcoin as the network continues to function as intended. This is so great to see and reinforces why I’m such an enthusiastic supporter of this idea of a decentralized digital asset.
Apropos “enthusiastic supporter,” did you see last week’s breaking news that legendary investor Paul Tudor Jones purchased bitcoin for his hedge fund, Tudor Investment Corp? This may represent a watershed moment for the institutional adoption of bitcoin. I highly recommend reading his letter to investors where Tudor Jones compared bitcoin’s role in a portfolio today to that of gold in the 1970s and his bet that bitcoin would be the best-performing hedge against the current Great Monetary Inflation. Tudor Jones now holds 1% to 2% of his assets in bitcoin. Clearly he sees bitcoin as a hedge against a possible decline in the value of the US dollar.
Everyone in the Bitcoin-world is absorbing the updated stock to flow model released by PlanB. The original version of this model predicted a near term bitcoin price of over $100k. The updated version of the model now predicts a near term price of over $200k. Stock to Flow is discussed with Saifedean in our podcast recording and I strongly encourage you to have a listen. Remember, all models are wrong; but some are more useful than others!
Bitcoin is currently trading at about $9,350 as of this writing.
Let’s have some fun today by creating our own Bitcoin story in three parts. Bitcoin is basically at a critical juncture where there is tension across three competing price trends. These three trends are the three parts to our story, in reverse order: part three is called “short term bullish, part two is called mid term bearish and part one is called long term bullish. To figure out how our story ends we need to resolve this tension, somehow. Now let’s create our story.
Part One: Long term bullish trend
At current prices Bitcoin could be considered to be in a consolidation phase versus the 2017 high of about $19,800. This would turn out to be very bullish for Bitcoin. As the awesome traders at Kenetic recently wrote: “BTC currently sits between the long term trend line and the upper resistance of the triangle it has been trading within since the all-time high of ~$19,800 in December ‘17. If prices are maintained at these levels for several weeks whilst the market moves into this new Bitcoin mining epoch, we expect new money sitting on the sidelines ready to ‘’buy the dip’’, eventually capitulating and entering the market. The macro backdrop could not be better, and the narratives that surround Bitcoin are becoming stronger each week. We believe it is only a matter of time before Bitcoin breaks to the upside from this triangle.”
Great news if you’re a long term HODL’er like I am. But alas our story does not end there…
Part two: Mid term bearish trend
Bitcoin is still in a clear descending triangle versus the 2017 highs as seen in the same chart from part one. It would take a sustained break above $11,000 to consider this channel broken, in other words, a higher high versus previous peaks in the channel. If that doesn’t happen then the channel dictates a revisit of at least $5,000, possibly $4.5k. Clearly a revisit of the March lows for equities would be concerning here. On the other hand, $4.5k bitcoin would be an incredible buying opportunity if you believe in the stock to flow model or the long term trend in part one.
One critical question to address whether the mid term trend continues to hold is if we believe that the bulls fully capitulated in March when Bitcoin bottomed out at about $3,800. We always want a bull capitulation to set the stage to break the downward trend. It’s impossible to say for certain as the dramatic one day fall was partially driven by fear in the equity markets, but it does appear to have been at least a short term capitulation by the bulls which could help invalidate this mid term bearish trend. But keep in mind that many people felt that Bitcoin was back last summer when the price hit $12k in June. Sometimes great things take a little longer than what we hoped for.
Part three: Short term bullish
Bitcoin’s sustained recovery versus the March lows has been very impressive, especially given the muted volume versus other recoveries. To some degree this recovery has been correlated to the recovery in equity prices. Although the last couple of days, as of this writing, have shown a divergence with equities which reinforces the bull case. Sustaining this channel dictates a short term price move above $10k which would invalidate the mid term bearish case and likely validate the long term bullish case. I would see a price move below $8k as an invalidation of the bullish trend and a revalidation of the mid term bearish trend.
So there we have it. Three seemingly competing price trends all coming to a head in the next few weeks, or sooner. Did you follow all that?? I’m going to reread the whole thing one more time since it’s all so interesting!
How does our story end?
Ultimately reconciling the three parts to our story may come down to whether you believe the stock to flow model is valid or not. If the model holds then basically you’re sitting on the opportunity of a decade to get in on the best hedge against the government printing machine with unprecedented, market uncorrelated, return potential.
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