Forecast - It seemed like nothing could spook crypto investors as Bitcoin ended October up more than 25%. It seems that sentiment indicates spot Bitcoin ETFs gaining approval from the SEC is only a matter of time. Research has indicated that inflows across all spot Bitcoin ETFs could total around $18 billion. Whether this price bump is a result of people anticipating a spot ETF approval is yet to be seen. Nevertheless, institutional interest is evident, and a significant supply shock, the Bitcoin halving, is just 6 months away. The pieces for another major bull run are falling into place. For now, though, we are tempering expectations and see Bitcoin in the short term hovering around 30-40k. In January our model pointed to Bitcoin ending the year at $48,800, this may not be too far out of reach.
Big Weeks - It’s time to check back in on our favorite metric! Bitcoin had another Big week in October, appreciating more than 15%. As we’ve mentioned, spot ETF developments and institutional interest are in the spotlight. That seems to be driving the latest surge but as history has shown there are a myriad of catalysts that can and have generated these big weeks. As we approach the 5th halving, the likelihood of outperformance increases and we could see a meaningful uptick in big weeks. In 2021 we had 6 such weeks and in 2017 there were 15! With Tradfi primed to pour billions into the Bitcoin spot market could we see a year similar to 2017? If you have any capital to allocate, we are in a good spot based on technicals. If you can manage to stack some more sats here, your future self will thank you.
Compounding Problems? Albert Einstein referred to compound interest as the 8th wonder of the world. He went on to state that those who understand it will earn it and those who don't will pay it. Hodlers seem to understand this. A simple Bitcoin buy-and-hold strategy has had a compound annual return of over 30% since 2018. Unfortunately, it appears that our government does not. Debt issuance has continued for the US government even as the FED increased rates in a drastic manner over the last 18 months. The government obviously needs money to keep this country running, but at what point will compound interest be a problem for the US? The US Treasury plans to borrow almost $1.6 trillion through Q4 this year and Q1 2024. This equates to about $800 billion per quarter. While Q3 saw them borrow $1T alone the decrease is far from encouraging. The Fed held rates steady on Wednesday and we seem to be firmly in Higher for Longer territory. So as rates stay high and debt grows, our government finds itself in a precarious position. Rates have been much higher in the past, but US Debt to GDP is at historic levels. So if we aren’t productive enough to pay the interest, where will the money come from? Probably more money printing, which has benefitted crypto participants greatly in the past. It’s almost like the government is telling you to buy Bitcoin.
Shocking Developments. The halving is coming. This is something that has been known since Bitcoin was created. These supply shocks have been catalysts for previous bull runs. Without an increase in demand, the reduction in supply doesn’t necessarily mean anything. So where could increased demand come from? Maybe our old nemesis, TradFi. Spot Bitcoin ETFs are most likely coming in early 2024. Unlike futures-based ETFs or GBTC, these will be backed by actual Bitcoin that will need to be bought when new shares are issued. So if traditional investors decide that they want to get a piece of the pie without having to venture into the crypto world, they will have a more palatable option. Spot BTC ETF inflows could reach $30B in the first few weeks. Currently, there is an estimated $31B invested in traditional crypto products. If we add $30B we get to about $60B. Does that sound unreasonable? Let’s take a look at the 2 largest spot Gold ETFs (since Bitcoin has been considered digital gold). SPDR Gold Shares (GLD) has AUM of $52.5B and the iShares Gold Trust (IAU) has AUM of $24.77B. Combined this is over $77B. Keep in mind these are just the two largest spot Gold ETFs and ignores not only smaller offering but also ETFs that focus on gold miners. Clearly, there is capacity for traditional market participants to allocate tens of billions of dollars to spot Bitcoin ETFs. We know the new BTC supply is going to be reduced and we can feel pretty confident that demand will pick up. Put those two together and you have the makings for the next bull run.
DAIM Issue 28 - Shocking Developments
November 3, 2023
DAIM Issue 27 - Diving Beyond Bitcoin and Ethereum