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We’re only 8 days into January and the crypto market has continued to go nuts. As of this morning Bitcoin has breached $40,000 and is climbing higher.
The calls for “bubble” and “tulip mania” grow ever louder from the haters, but they bring up a good question: is Bitcoin at a local top?
Long term, I believe Bitcoin is going to somewhere near $1MM per coin but the road along the way will be full of bumps and retracements – so let’s see if we’re about to hit one…
To check for a top in Bitcoin I’ll start small at the micro level and work outward toward the macro picture.
Quick TA on the Bitcoin log chart shows parabolic growth (not uncommon for BTC) moving above a trend line that was set in mid-December – no signs of slowing down here, if the price were to break this trend we’d likely start seeing a move downward towards $30k, the nearest support level.
Taking a look at on-chain data is the next step outward. NVTS set a trend line on a similar timeline as the price chart and is still moving above it. If this trend line were to be broken I would definitely expect a move downward. NVTS is one of my favorite indicators and has accurately called all major BTC tops (2017 included).
Technicals look good, time to look at the macro picture. Google trends is another great indicator. For the period of 2017-today, search interest in the term “Bitcoin” peaked at 100 during the 2017 run-up and currently sits at 48. This makes sense given the recent media attention given to Bitcoin and anecdotally I’ve seen buying interest growing in my circle as well among people previously not interested in crypto.
Like the technicals, this chart is bullish but we may be entering the 2nd half of this bull cycle. Watch this chart closely.
The main catalyst for this bull cycle has been the institutional narrative. Large institutions, not just hedge funds, have been buying tons of Bitcoin. Combined, these purchases are greater than the daily supply from miners which is creating a classic supply squeeze driving prices upward.
One key point here is that many institutions are still not able to buy Bitcoin by mandate (mutual funds, pensions etc.). But they can buy equities – enter MicroStrategy…
Michael Saylor famously bought $500M in Bitcoin using his company’s (MicroStrategy) balance sheet in November. He then followed that up with a $650M convertible bond offering with the exclusive purpose of buying more Bitcoin. It was oversubscribed.
Here’s the chart:
One off, this is a neat story but this isn’t one off. Once Wall Street sees a profitable idea it gets replicated. There’s a lot of cash-rich tech companies out there that can leverage their balance sheets for similar plays and you better believe they’re watching this closely.
A similar phenomenon happened pre-2008 with credit default swaps on mortgage bonds. Once a few players had placed their bets, the rest of Wall Street followed and ballooned the market to $45T before it infamously exploded.
Micro and macro indicators suggest Bitcoin is not at a local top and will continue to climb. The previous bull cycle produced a ~10x multiple in Bitcoin’s price before a big blow off. Applying that logic to this bull cycle implies a price target of $50,000-$100,000 – but there is a lot of positive macro pressure in this cycle that didn’t exist last time so that estimate may be low.
Forward and upward.
The Portfolio Rundown
Lots of movement in the portfolio from last week, I finally cleaned house and am starting to position for 2021. Overview of the changes:
Sold some BTC (this was painful but necessary) to target a 50% allocation and will be topping up LINK to 10% using the resulting cash position – idea here is to shift focus to alts as the Bitcoin/altcoin feedback loop starts up
Sold ZRX, SC, and GNT and rolled these positions into AAVE. These were lagging 2017-era coins that needed to go, this move represents the beginning of my DeFi portfolio I’ll be talking more about in the coming weeks.
For early 2021 I’m targeting the following allocations:
50% BTC | 25% ETH | 10% LINK | 10% ADA | 2.5% PNK | 2.5% AAVE
Nothing in this email is intended to serve as financial advice. Do your own research.