Is Bitcoin's bubble ready to pop?
Last week saw Bitcoin's weekly candle close closer to $100k than $0 for the first time in its entire existence. With a close high of $57,323, Bitcoin's market cap launched above the $1 trillion mark and the overall cryptocurrency market cap above $1.7 trillion. For context, comparing this to the world's largest companies by market cap, the overall crypto space is now bigger than Amazon, Google, Tesla and is fast closing on the largest global company, Apple, whose market cap sits at $2.2 trillion.
The question remains, how long can this bullish rampage continue, and when does this top blow off?
Let's think about the fundamental factors driving this rally and who has been purchasing large amounts of bitcoin in this bullish period and compare it against 2017's bubble. The media created 2017's bubble. A tsunami of media hyped the digital asset, presenting it as a way for every man and his dog to make free money. Every article, newspaper, social media post was shoving cryptocurrency information in people's faces, followed by advice on how to participate. This created huge FOMO within the masses, and by the time most inexperienced investors had figured out how to buy Bitcoin, the price was already at $14k. This increased demand created a colossal influx of new exchange subscriptions, causing huge demand for Binance, Kraken, Coinbase, and many more platforms. This new demand led to platforms taking several days to KYC approve all the noobies. For context, BTC went from $11,700 to $17,350 in under 2 days. By the time these new investors had been approved and could get involved in this new shiny asset that promised everyone, 'Lambo soon,' 'to the moon,' it was already at $18k. The huge demand from inexperienced retail traders was driven by an expectation to benefit from the price increases being screamed and promised by the media. They likely knew little to nothing about Bitcoin or blockchain technology. It came as no surprise when the price started to fall, a huge blow-off top scenario unfolded. As these noobie investors quickly learned, what goes up can come down, and their positions in something they knew nothing about went deep into losses within days. Of course, they joined the selling frenzy.
The driver of this bull rally isn't the uneducated masses. Its notable increase in demand hasn't been caused by mass media FOMO. We simply have to recall the events that have unfolded over the past few weeks to see why this is such a different scenario. BitPay has updated its service so that Apple Pay users can now use cryptocurrency at checkout. Elon Musk and Tesla purchased $1.5bn of Bitcoin and are starting to accept Bitcoin as a payment method. Visa, Mastercard, BNY Mellon, among many other financial corporation giants, have announced their plans to integrate crypto into their current services with the end goal that cryptocurrencies are eventually treated the same as any other asset. Blackrock, the world's largest asset manager who reported $8.68 trillion AUM in Q4 2020, has recently entered the Bitcoin space, disclosing its plans to add the cryptocurrency into two of its funds. Grayscale, the largest crypto asset management firm, purchased another $600 million Bitcoin in 24 hours last week, bringing their total BTC holding to over 630,000. At today's current price of c$54,000, that's a total value of over $33 billion. The list goes on.
We believe the theme at play here, the acceptance of major institutions, is much more than investing in BTC in speculation for the future price potential. What stands out the most is the trend that CEO of MicroStrategy, Michael Saylor, started, and Tesla popularized: moving institutional balance sheets into Bitcoin to hedge against inflation and rising debt. Continued stimulus into the global economy increases retail demand as individual investors are looking to participate in Bitcoin's price rally. Regulatory clarity continues to de-risk the digital currency industry. Our beliefs are we could see BTC continue with its bullish rampage, provided conditions remain similar for the next 6-12 months. This is bigger than individuals looking to become rich and buy Lambos. Bitcoin is the base layer for an emerging alternative financial system. BTC is providing a solid foundation for a variety of projects that will fundamentally change the nature of money as we know it by the end of the decade.
When will BTC make it to $100k?
The question on most investor's minds is where does Bitcoin head next? It is vital to state any guess on where an asset's price will head next is purely speculation and in no way a certain or financial advice. No one knows for sure all we can do is build a thesis. Our research leads us to believe that this positive momentum will continue, and the next stop for BTC could be north of $100,000. As the price of Bitcoin continues to rise, so do the number of addresses holding digital assets, showing no slow down in demand.
If we look at Bitcoin's logarithmic growth curve tracking all historical data of BTC, we can clearly see we have recently broken the significant MidDev area. If we look at previous times this has happened, it usually results in a substantial rally up to the HighDev area shortly after being broken. If a similar situation was to play out, we could see price heading swiftly towards that $100,000 level.
Another supporting formula of this thesis is to look at is an indicator called MVRV Z-Score. This indicator uses blockchain analysis to identify periods where Bitcoin is extremely over or undervalued relative to its 'fair value.' The MVRV Z-Score has historically been very effective in identifying periods where market value moves unusually high above realized value. These periods are highlighted by the z-score (red line) entering the pink box and indicates the top of market cycles. It has been able to pick the market high of each cycle to within two weeks. As we can see in the chart below, we have just breached into the pink box. However, when looking back at previous bull runs, BTC has more than doubled from the area we are currently sat at before pushing above the top of the pink box, where the formula indicates a top is coming.
Another popular metric is the Stock to Flow ratio. This model assumes scarcity drives value and is a metric that the price of BTC has historically followed, as we can see in the chart below. Stock to Flow is defined as the ratio of a commodity's current stock (i.e. circulating Bitcoin supply) and the flow of new production (i.e. newly mined bitcoins). Following this model, a predicted price above $100k could be achieved as early as May 2021.
These are some of our favorite metrics that show the market is not overheated and in imminent threat of a cycle top. If we simply looked at the daily price action on the BTC chart, we would be inclined to think the bullish rally is overextended and in need of a correction. When looking at the fundamentals behind this rally and layering in the above metrics, we believe this bullish momentum will continue, and $100k is on the horizon.
TA. Gold Long
One of our favorite technical setups for this week is a long Gold play. In July 2020, actually, on my (Jonny) birthday, 27 July, we saw Gold print a new all-time high for the first time since 2011. Whenever we break something of significance, price is very likely to retrace and retest it. We have been patiently waiting for the previous resistance of Gold's all-time monthly high to be retested as support. We had an initial retest of this level back in November 2020 and now are looking to form a double bottom at this region on the weekly chart, holding it as support for a long play back up to ATH's.
I, Jonny, executed a long position on this pair at the end of last week when bullish momentum started kicking in, executing our SBO strategy. This bullish momentum has continued as this new week has begun, and I will be looking for further scale-ins if presented. We are looking to break above the trend line evident on the daily chart, back above our EMA's with a max target of back up to the ATH's of $2075.
Currencies: It feels as though bullish momentum will never stop for AUD & NZD pairs after another week of bullish pressure. We remain patient and are waiting for deceleration at significant S/R areas, continuing to look for pullback opportunities. JPY pairs also have suffered nearly 12 months of bearish price action, and pullback opportunities are also on our main watch.
Commodities: Oil remains overextended. We are looking for further deceleration at the current price, and any quick in and out pullback plays. Our medium-term bias remains bullish, but we would like to see a sizeable pullback before positioning ourselves long.
Equities: Major indexes remain overextended. We stay patient, looking for deeper corrections after further deceleration has developed.
TMC Club - Momentum is everything
The perspective most have around the trading industry from social media is everyone’s a millionaire, that every trade has to be six figures of profit or ‘do you even trade bro’. We can tell you this isn’t real life.
We all start from somewhere, and having perspective of that is essential for growth as you build your account. If you are infatuated with comparing yourself to others and their results without factoring in they may have been in this industry for 10+ years. They would’ve started from a similar place to you. It will likely hurt your mindset and ultimately affect your decision-making and the momentum you can build in your results.
One of our TMC Club members, Ash, had their first £1,000 day from a single trade, EURJPY, and we wish to congratulate him! Momentum is on your side, and we have no doubt it won’t be long before you have a five-figure day.
What's happening this week?
Monday, February 22nd, 2021 @ 1pm PT
Market Update with Jonny Godfrey
Wednesday, February 24th, 2021 @ 1pm PT
Market Update with Jonny Godfrey
Thursday, February 25th, 2021 @ 11am PT
Chronicles LIVE with Irek Piekarski
TMC Diamond access required
Friday, February 26th, 2021 @ 11am PT
Insights with Irek Piekarski
All the best for the week ahead and we'll see you in the club!
Jonny Godfrey & the TMC Team