Disclaimer: Your capital is at risk. This is not investment advice.
ByteTree Market Health Update; Issue 21
In recent weeks, it has been noticeable how the price of Bitcoin has not only crashed alongside the stock market but also recovered. Bitcoin is different from other assets in so many ways, yet its behaviour is becoming increasingly correlated with the stock market.
That doesn’t mean Bitcoin cannot outperform over the long-term, just that it moves up and down on the same tide as everything else. What do silver, Tesla, emerging markets, junk bonds, and Bitcoin have in common? They are traded by speculators. For Bitcoin to win, it must grow. And in order to grow, Bitcoin must become ever more desirable to the outside world.
“But why bother with all that hard work, when you can just make fewer of them? Scarcity will drive Bitcoin to the moon! Halving baby. Yeah!”
Halving is less than a month away. There are only 2.7 million Bitcoins to mine, and it will become even harder to get hold of them. That reduces the rate of new supply but does nothing for the credibility or usefulness of the current stock. There is a widely held belief that scarcity adds value, and that halving will see the price double. Since many investors believe this, they have bought ahead of halving in anticipation of double money. But what if they are wrong?
The risk here is that the price has been driven by halving bulls, that will become stale bulls. Bitcoin tourists have bought the story and will be sorely disappointed when halving does nothing at all to the price. It did nothing for Litecoin last summer, and it did nothing for Bitcoin Cash and Bitcoin SV last week. Ah but it’s the real Bitcoin, say the sceptics, this will be different.
It isn’t different. Russia, Saudi and the US agreed to cut oil production by 10 million barrels. What did the market do? It collapsed. Remember when the Bunker Hunt brothers cornered the silver market in 1980? It collapsed. Beware the promises of riches courtesy of the supply squeeze.
At ByteTree we focus on demand. We do that because supply is already known and so there is little to say.
ByteTree’s market health improved from a score of 2 (bear) to a 3 on 13 March. Then again to a 4 (bull) on 19 March and even to a 5 on 25 March. The 5 only lasted for 2 days so we find ourselves back at 4. The fear is that we soon move back down to a 3. Why? Because the network fees keep on falling. They were over $2 million/week three weeks ago. And now? It pains me to tell you, but last week, they were less than $1 million. Easter holidays perhaps, but the trend is heading south.
Bitcoin will rise because there is more demand. Tight supply gives the market confidence, but you can’t expect it to create value. Yet too many people believe that, and a halving premium will need to be unwound. The sooner people understand that Bitcoin is a tech stock, the better. When they do, the price really will go to the moon.