Bitcoin Fundamental Briefing, February 2021

Once the price increases to a certain level, old and new players start to increase the number of deposits towards exchanges, in order to capture profits or speculate on price discovery. Comparing our current cycle to the last bull run in 2017, it becomes clear that we are still in that early acceleration phase of the curve. Note that it is important to normalize the number of depositing addresses to the number of total addresses in the network, which increased about 3 fold since 2017. Thus one should divide the current number of addresses on the chart below by 3 to make any valid comparison with the previous bull run.

We are not at the end until the number of addresses depositing to exchanges goes exponential.

As things stand in historical terms we are in the middle of this supply transition from long term holders to short term holders. This transition, although faster than in 2017, is a strong sign that we have moved out of the initial accumulation phase.

in 2017 when this is occurred, about 6 months prior to the peak.  Increased roughly 10 fold after that. It means there’s some profit taking occurring from long term holders as new players enter the game, but there’s still a long way to go until the peak.

Third party forecasts on BTC Price

Bitcoin is increasingly ‘cultist’ and supported by ‘magical thinking’, says Barclays wealth investment chief

Will Hobbs, the CIO Barclays Wealth & Investments, said his firm is not interested in the world’s biggest cryptocurrency at the moment, despite its recent record-breaking rally. He added that he thought the currency was backed by a “lot of magical thinking.”

“It is multiples more volatile than our most white-knuckle-ride asset class, which is emerging market equities,” he told Insider. In order for an asset to make it into our asset class toolkit, it has to satisfy a couple of things. One, it has to have a positive expected return, obviously. And the other is it has to have some diversification appeal.

“Now it may well be over time that bitcoin satisfies both of those. But at the moment it’s very hard to say.” Hobbs did not rule out ever delving into bitcoin, saying: “We wait on the sidelines and watch others.”

“Bitcoin prices have continued their meteoric rise with Tesla, BNY Mellon and Mastercard’s announcements of greater acceptance of cryptocurrencies,” JPMorgan said in a research note last week.  But fintech innovation and increased demand for digital services are the real Covid-19 story with the rise of online start-ups and expansion of digital platforms into credit and payments.”

JPMorgan’s own strategists say that bitcoin could rally as high as $146,000 as it competes with gold as a potential hedge against inflation in the coronavirus crisis.

Still, skeptics remain unconvinced. Economists like Nouriel Roubini say that bitcoin and other cryptocurrencies have no intrinsic value. And a recent Deutsche Bank survey said investors view bitcoin as the most extreme bubble in financial markets.

JP Morgan: Has only $11bn of institutional flow into bitcoin since September-end
caused a $700bn increase in its market cap?

What has been remarkable over the past five months is that the $700bn increase in the market cap of bitcoin has taken place with relatively little
institutional flows. For example, proxying these institutional flows via the cumulative flows into the Grayscale Bitcoin Trust or other publicly listed bitcoin funds as well as the cumulative flows into CME bitcoin futures and announcements by institutions such as Tesla, Mass Mutual, Guggenheim
and others, we get an aggregate flow of around $11bn since the end of September which accounts for just above 1.5% of the increase in the bitcoin market cap over the same period. How is it possible that such a limited flow would result in the magnitude of the increase in bitcoin market cap? One possibility is that, given the increase in interest from real money
investors, and speculative investors seeking to front run it, this limited flow is hitting a relatively inelastic supply of a predetermined increase in new bitcoins
mined and having to offer a premium to get existing holders to part with their bitcoin holdings. A second possibility is that retail inflows have significantly
magnified the institutional flow.

Figure 5 shows 2-week rolling flows into the Greyscale trust as a proxy for real money interest and 2-week rolling changes in our futures positioning indicator as a proxy for speculative institutional investor interest compared to 2-week rolling returns in bitcoin prices. It suggests that, after announcements from end-September onwards, real money inflows during Oct/Nov/Dec contributed to the rally in bitcoin prices at the time, while the movements since January this year appear to have been more influenced by speculative flows. This also
suggest that some pickup in real money flows would likely be needed to sustain current prices in the absence of a re-acceleration of the retail flow.

Guggenheim Partners – Bitcoin could rise to $600K in long term

“If we consider the offer of bitcoin regarding, say, the supply of gold and its total value, and the cryptocurrency rises to similar values, we will talk about $ 400,000- $ 600,000 per coin,” Minerd said.

According to the top manager, Guggenheim Partners has been studying the first cryptocurrency for almost 10 years. He added that previously the market volume was “not large enough and unjustified for institutional money.”

Minerd noted that the rapid growth of digital gold from $ 20,000 to $ 40,000 in a few weeks “smacks of short-term speculation.”

According to him, the participation of institutional investors in the market is growing, but this is still not enough to maintain the current level of the bitcoin price.

On January 21, Minerd announced that the first cryptocurrency this year has already peaked in its market value. He predicted a decline in the price of BTC to $ 20,000.

Michael Burry who has forecasted 2008 crush of Sub Prime debt thinks that governments accelerate inflation and start liquidation of the fiscal rivals:

Our View on BTC medium term perspective

Our general outlook stands positive, as we see that institutional investors keep a beneficial interest in cryptocurrencies. Statistics also show good performance – BTC and ETH hedge funds are growing, mining hits all-time records, trading activity is rising as well.

Still, few risk factors make us cautious on the absolutely cloudless forecast. First is – the rising share of short-term investors that accumulate coins from whales’ selling. When the market strongly depends on short-term positions, it becomes an object of high volatility and poor forecasting.

Second – interest rates. We’ve talked about it in our last report and repeat this once again. We agree with Michael Burry and Will Hobbs from Barclays and tell the same thing – how BTC behaves when interest rates come to 2%, and real interest rates start rising. Our worry is not in vain since a big part of the market stands under institutional investors’ control. The shape of the market is drastically changed. And institutional investors bring their own “classic and scientist” approach to market valuation and the business cycle. This approach tells that on bullish economy cycle, interest-bearing assets dominate over non-interest assets such as gold and… yes – the BTC. So the risk is whether this “rule of thumb” spreads over Bitcoin or will somehow avoid this.

In recent two months, we talk a lot about the correlation of BTC and 10-year interest rates, but yesterday, when rates jumped to 1.55% Bitcoin, has not followed somehow:

Because major shifts start to happen when interest rates are closer to 2%, the recent jump was to 1.55% already. Besides, interest rates now stand at a substantial 1.42-1.50% long-term resistance area, suggesting a technical pullback. Following the cross-market analysis – BTC could follow. Besides, as we’ve mentioned above, as big investors start to book profit, we have other reasons to suggest the pullback.
That’s being said, in the medium-term, we keep a bullish view and think that the best strategy now is to Buy on deeps across all time frames, as the market has strong upside momentum and good fundamentals that just can’t be over in a blink of an eye. But, as interest rates come closer to 2% and real rates start to rise – we have to be more careful as it is unclear how the BTC market response, or better to say how institutional investors treat this “new” toy in the environment of rising interest rates as it was not tested their before.