After the Bitcoin price fell above $ 40,000 again, it was sold for five days in a row. For this reason, this could mean the end for BTC (for the time being).
Bitcoin is trading at $ 35,640, down $ 829 (-2.34%).
This report may not be a pleasant read for bitcoin bulls. Still, I continue anyway.
First, I think BTC will be around for a long time and will continue to play an important role in portfolio diversification. However, some valid arguments support a bearish outlook.
Bitcoin counter arguments
Store of value. Since its inception, the narrative surrounding Bitcoin has changed. Originally, BTC was considered an inexpensive, decentralized peer-to-peer currency. This then shifted to digital gold theory, followed by the argument that Bitcoin would act as a “reserve currency” for the crypto ecosystem. Finally, the narrative has focused on the Bitcoin price, which is an effective hedge against inflation and acts as a store of value.
BTC has fallen 45% in the past 6 weeks. This affects the value store argument.
Inflation hedge. The massive creation of money in the wake of the Covid-19 pandemic added trillions of dollars to central banks’ balance sheets. This excess liquidity then found its way into asset prices. In addition, supply chain disruptions further increased inflationary pressures and skyrocketed consumer prices.
Certainly, for the first trimester of 2021, Bitcoin price turned out to be an effective protection against inflation. However, inflation looks increasingly “temporary”. Commodity prices have flipped sharply from highs as supply begins to catch up with increasing demand.
Additionally, the Federal Reserve could soon begin slowing bond purchases and initiating a tightening cycle.
This could seriously undermine the inflation hedge argument for BTC. If inflation cools down, that should put some downside pressure on Bitcoin.
Institutional demand. Institutional demand has increased over the past year. Still, I’d say it’s the wrong strain.
Instead of a broad institutional offering, a few institutions have large, highly concentrated positions.
Microstrategy has a BTC position that is the largest contributor to their valuation and far exceeds their core business. In addition, MSTR has raised significant capital at the junk bond level to fund further BTC accumulation. This could pose a serious risk to both MSTR and the Bitcoin price.
Just buy the dip
BTC likely has a more loyal fan base than any other tradable asset. His greatest supporters will point out his incredible accomplishment over the past decade. And that’s fine, but BTC has also seen a number of violent drawdowns.
You would argue that if you had been willing to tie up your money for extended periods of time and get negative returns, the strategy has worked well if you should have been using only HODL (Hold For Life) and BTFD (Buy The …. Dip) .
Hence, the recent slump will likely have brought new HODL’er to market, adding to the overall length and increasing the average purchase price.
Assets with highly skewed positions can be prone to sharp reversals. Think Gamestop, AMC, etc. These stocks were disproportionately short. Bitcoin has the opposite.
If I scroll long enough I can see that Amazon has been an amazing investment over the past 20 years. However, the investors who paid $ 113 in December 1999 didn’t break even until September 2010. And that doesn’t take into account the loss of opportunity and the cost of running the position.
Bitcoin price is not correlated with the stock market
The stock market also saw astonishing development in the decade before the Covid-19 pandemic.
The dam finally broke in March 2020 and stocks, gold, base metals and pretty much everything else suffered catastrophic, one-time losses.
Then, within three weeks, BTC lost 60% of its value.
In times of crisis, the correlation between asset classes increases as investors panic and sell everything they have.
Technical outlook for BTC
Despite some positive news over the past two weeks, Bitcoin has failed to sustain recent gains.
BTC soon reversed a brief rally above $ 40,000 and the momentum is becoming increasingly bearish.
The 50-day moving average fell below the 100-day average towards the end of May. In addition, and more importantly, it has just completed a bearish crossover of the 200-day average.
The MACD also underscores the change in sentiment and, although it is still positive, is trending downwards.
Volume was down over the last month, suggesting buyers have either already bought the dip or are waiting for lower prices.
The ultimate threat to Bitcoin price would be not to hold the $ 30,000 bottom of the May crash. This could lead to a deeper drop that could cause BTC to drop to $ 20,000.
I’m painting a pretty bleak picture, and of course there’s still a chance that Bitcoin could soon see a turnaround.
However, I don’t see any positive development on the horizon yet.