“I’d rather own Bitcoin than Bonds.”
Dalio, Ray. Ray Dalio: ‘I Have Some Bitcoin’. “CoinDesk Forum.” 24 May 2021.
I’m doing a special update on cryptos because of the recent crash. My belief says we just had a mini-bear market within a major bull market and there is still great opportunity ahead in this market.
Market Summary
First, our Super Trader system stopped out of BTC on May 15th at $46,877.18 when it closed below our exit price of $49,090. I was a little stunned by that as I thought BTC had found support at about $50,000. We had so many coins with 1,000% gains in 2021 so I certainly didn’t think of this initially as an exit point for all cryptos – but it turned out to be an excellent exit.
On May 18th, BTC had a low of about $42,368—but then it dropped overnight to about $12K and hit its low so far of $30,681 on May 19th. Many of the altcoins went down as much as 50% during that period as well. Wow! I had unloaded a lot of my personal crypto holdings on May 18th so it felt good to then see the market drop like that the next day. I had also liquidated the VTI crypto portfolio as it was slightly below breakeven and the last thing I wanted to do was turn a 60% profit into a significant loss.
So far, $30,681 is still the BTC low for this move. Today, it went back above $40K briefly.
I think the Galaxy Bloomberg Crypto Index chart illustrates what happened quite well –
The index was up over 3,500 earlier this month and then it dropped to about 2,200. It has slightly recovered to 2,402. This index is put out by Galaxy Digit (BRBFH) which is one of the better crypto stocks available.
So, What Happened?
The selloff was insane and had no logic behind it. Here are a few factors that I think influenced the drop.
First, we had Elon Musk and his famous tweets. Can we trust people who make lots of tweets like they know what they are doing? Consider especially that Tweets confine users to one or two sentences that cannot be explained in any detail.
Here are Musk’s contributions to crypto price:
- He announced that Tesla Stock has acquired $1.6B in BTC and that Tesla would accept payment in BTC.
- He started promoting a joke coin called DOGE. Later, it becomes apparent that he’s had a relationship with DOGE coin developers since 2019 and Musk may profit in some way through his tweets about DOGE coin.
- He then announced that BTC is too much of an energy hog so Tesla would no longer accept BTC in payment anymore. People assume that means he’s also selling off his $1.6B in BTC which starts a panic.
- He then says he’ll accept DOGE for payment on Space X flights. Like BTC, however, DOGE is also a proof of work coin which means that it’s also an energy hog.
Next, we have crypto options traders and futures traders. First, options traders have to hedge their options positions in the futures market with short positions. Then as the market starts to run down, a huge number of futures traders start going short and driving the price down further. Most people thought that was probably Musk selling his $1.5B position, however, Musk didn’t sell his BTC position nor did any other big institutions that I know of.
Third, we also have China. Their central bank now has a digital currency and China has started cracking down on other cryptos. BTC mining in China started to dwindle but wait, shouldn’t that increase BTC prices? Once the US futures traders are done for the day, subsequent price declines seem to occur during off-hours from the apparent activity in Asia.
That’s all it takes to crash prices 50% in a major bull market. If you invest in crypto, then expect to live with huge volatility. No major institutions that I know of, however, have sold off their crypto investments. Perhaps there are one or two, but I’ve looked and haven’t seen anything like that.
On May 7th, Yellow talked about stricter cryptocurrency compliance with laws requiring any transfer of $10,000 or more to be reported to the IRS. And Yellow said, “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.” On top of that, the media likes to talk about government crackdowns against crooks using BTC. If the government gains one blockchain address associated with your name, that’s all they need to know to find out what you have done with your cryptos and then unwind your entire portfolio. Tracking crypto transactions is much easier for the government to do than tracking cash transactions.
The Technical Picture Now
From a technical standpoint, I’ve seen various comments including the following:
- There is minor support around $30,000 – which BTC has tested.
- Stronger support is at the $27,000 level.
- There is resistance at $40,000.
- BTC is trading below its 100 day moving average so this correction will probably continue.
Aside from that, there is no other negative news. In my opinion, crypto prices will probably surpass their May highs later in 2021 despite needing a 100% gain in many cases to take out the old highs.
Positive Crypto News
1) PayPal now allows people to transfer their cryptos to a digital wallet.
2) Coinbase plans to start emphasizing institutional clients and cater to them.
3) Crypto sales are not subject to wash sale rules. That means you can take your crypto losses now, reduce your taxes for the year, and then buy the cryptos back.
4) From the end of April until now, wallet addresses holding BTC for less than a month dropped from 5.05 million to 4.37 million while the number of addresses holding BTC for more than one year increased by 120k and stands at 21.93 million. Most BTC owners are long-term holders.
5) Several central banks are playing with the idea of a centralized cryptocurrency to replace their paper/plastic notes.
6) I found the following survey which had these major findings –
- More than 1 in 3 US Citizens say they’ll buy BTC in the next five years.
- 31% of Americans say most people will be using BTC in the next ten years.
- About one-third of the population would prefer to own $1,000 of BTC than bonds, stocks, real estate, or gold.
7) From that survey, I also learned:
- 90% of Americans have heard of Bitcoin.
- 45% of Americans feel somewhat familiar with BTC.
- About the same percentage agree that BTC is a positive innovation in financial technology. People my age, however, had the lowest percentage for that belief – only 25%.
- 41% think most people will be using BTC in the next 10 years (but only about 20% in my age group.)
- 38% think BTC will last longer than the Euro.
- 34% are likely to buy BTC in the next five years.
- About 14% claim to own BTC and about 5% claim to own ETH. (but it’s only about 2% who own either of those cryptos in my age group.)
- Note: Most Americans are not reading my crypto updates even though this newsletter is free.
8) Remember Goldman Sachs’ disparaging remarks about Bitcoin in 2018? Well now, Goldman Sachs lists BTC as an asset class.
So, let’s look at what has happened to cryptoassets since the last crypto update on May 21st when the market was 87.6% bullish (either bull or strong bull) and 2.9% bearish:
The next table shows the number of coins (we track about 242) that have still gained more than 1,000% in 2021. It also shows the 24-hour update, and the 7, 30, 60, and 90-day percentage gains.
We still have 12 altcoins that are up over 1000% this year and only two of those are down over the last 24 hours.
The following table shows the top Market SQN scores (100 days). Matic is number one on this list also.
Where Are We?
The following are my beliefs about cryptos right now.
- We are in just a correction in a major bull market.
- This Bull market will last at least another six months (but perhaps will last even a year or two more).
- With a stop at about $26,000, BTC looks like it has an acceptable reward to risk ratio at better than 4:1 right now. That is if you believe that BTC could potentially reach $100,000 this year.
- Many altcoins are looking pretty good now despite their setups.
- Those who attended the Super Trader Crypto workshop in June should have a pretty good idea about what to do based upon the information in this report.
This newsletter is free and has no recommendations to trade or invest in anything. I am simply stating my beliefs. You can only trade your own beliefs. You cannot trade mine.
Until mid-June, when we’ll do our next full Crypto Update, this is Van Tharp.