The month of November resumed the downtrend that Bitcoin has been in since it peaked on June 24th. The explosive move higher Bitcoin experienced at the end of October resulting in a rally of over 38% in a single day was completely erased over the course of November. The entire move was retraced and then some, briefly touching $6,500 before ending the month down 18% at $7,569, the lowest levels since early May. So what gives?
As you might recall, it was widely speculated that the catalyst for October’s end of month rally was China announcing their intention to develop blockchain technology as a national policy. The knee jerk reaction to this sudden development was viewed as an endorsement of Bitcoin and its quest for global adoption. As noted in our October letter, we found this interpretation to be curious as it was highly unlikely that China would adopt the use of decentralized technology like Bitcoin and the freedom it provides and that their interest in blockchain technology was likely to be used to develop a digital Yuan and used as a mechanism for surveillance and control. This made us cautious that the rally was potentially driven by other factors at play and the sudden movement in price as exciting and explosive as it was, would end up being short lived and nothing more than a bearish retest of the market structure we broke back in September.
While the past 5 months of downward pressure in the price of Bitcoin has been nothing short of disappointing, we believe, as noted in our analysis in the past three monthly updates, Bitcoin trading in the $6,400 - $7,500 range should be considered accumulation opportunities. Positive developments continue to strengthen Bitcoin’s appeal both in the global macro backdrop and well as infrastructure and products being developed in the space. We foresee the potential for price to fluctuate within these lower levels through the remainder of the year and possibly into early 2020, clients should be utilizing this weakness to opportunistically add to their exposure.
As believers in the long term value of Bitcoin, it’s important to remind clients and prospective investors of taking a balanced and sober approach to investing in Bitcoin and digital assets. Bitcoin’s speculative potential as a store-of-value and global money must be reconciled with the fact that it is indeed very early in its overall adoption. The volatility Bitcoin exhibits is a function of the ebb and flow of capital moving in and out of Bitcoin driven by both supply/demand and greed/fear. For every move higher that sees price move parabolically to the upside, creating a brief period of buyer FOMO (fear of missing out), there’s almost always a prolonged period of significant retracement and consolidation. However, when analyzing Bitcoin’s historic price performance, it reveals that despite its volatility and massive prices swings, Bitcoin continues to put in a series of higher lows year after year(except 2015). In fact, owning Bitcoin has been a profitable investment for 3,607 days out of 3,989 days of its existence or 90.42% of the time.
2012 – $4
2013 – $65
2014 – $200
2015 – $185
2016 – $365
2017 – $780
2018 – $3122
2019 – $3311
In simple terms, patient investors are being healthily rewarded. When digging into the data, Bitcoin underlying fundamentals are even more impressive. When analyzing Bitcoin’s UTXOs or unspent transactions, the cumulative age of Bitcoins that haven’t been moved or touched in over a year are equal to 11,580,000 Bitcoins or about 64% of total Bitcoin in circulation. The significant increase in the number of Bitcoin being held and stored away regardless of whichever direction the markets shift, suggests that new entrants are adopting the HODLer mentality and Bitcoin is fulfilling one of its original purposes as a store of value. Given Bitcoin’s fixed supply and limited amount of new coins being minted over the coming years, the question remains, with Bitcoin still in the nascent stages of adoption, how will individual investors, institutions, governments and central banks be able acquire exposure to Bitcoin in the future? As Bitcoin moves from the fringes to mainstream, acquiring a single Bitcoin will be next to impossible in years to come.
As we enter the final month of the year we see a very clear range and two distinct scenarios for Bitcoin short term. After closing below $7,800 on a weekly basis, Bitcoin reaffirmed its bearish market structure and bias. For now, we believe the price will bounce between $6700 and $7800 through the month of December. Should Bitcoin test the upper end of the range and break through we see a quick move to 8,200 before reversing course and falling back into range. Should it run out of steam and get rejected at $7,800, we see Bitcoin swiftly resuming its downtrend and testing the lower end of the range. It’s important that Bitcoin hold this level but if Bitcoin is unable to hold its feet, we expect it to find support around $6,100. The most bullish outcome would be price finding support at $6,700 and then reclaiming the $7,350-$7,710 level. This would signal a double bottoming, nullifying our bearish directional bias and serving as strong early evidence of a trend reversal.
Bitcoin Mining Company Canaan, Inc Goes Public on NASDAQ
Canadian Asset Manager 3iQ Wins Approval & Files Prospectus for Bitcoin ETF
Crypto focused bank Silvergate Goes Public on NYSE
German Parliament Passes Law Allowing Banks to Trade and Custody Digital Assets
CME Announces Bitcoin Options Starting January 2020
BAKKT announces Bitcoin Options Starting in 2020
World’s Largest BTC Mining Operation Breaks Ground in Texas
What we are watching: ETH Update
As we mentioned in the last two updates, a key theme that we are monitoring is the performance of Ethereum relative to Bitcoin. We believe there is an investment case for Ethereum, especially with Decentralized Finance services and that it’s price is bottoming relative to Bitcoin, presenting a buying opportunity for our clients to allocate a small portion of their Bitcoin investment to Ethereum with potential outperformance of 50-100%. As we monitor this development, patience will be key. We’ll include a more detailed analysis and the investment case for Ethereum in our December letter.
We’d like to take a moment to announce that we have secured a new custody and trading partner for client assets in Gemini, LLC and Sunwest Trust as custodian and administrator of client IRA’s and 401k’s. This is an exciting development for us and one we have been working on since May of this year to streamline our operations, reduce fees and provide a better overall experience to our clients. All existing clients will be slowly migrated over to our new partners over the next two months.
The best clients are the ones we are introduced to from our existing clients. We would like to take this opportunity to remind clients that your recommendation of DAiM to friends and colleagues who are interested in investing in Bitcoin and Digital Assets would be very appreciative. We are currently rolling out a solicitation/referral program available to clients only that would compensate you for introducing us to individuals who become clients of DAiM. If you are interested, please contact us directly.
Lastly, it’s important to mention the broader risk market backdrop as it pertains to Bitcoin. While we believe the case for Bitcoin as a non-sovereign, hard-capped fixed supply, global, immutable, decentralized, digital store of value is wildly bullish, we must recognize Bitcoin is still a risk asset and it has never existed in a recession. Should we experience a recession and global slowdown, we would expect the price of Bitcoin to suffer initially in a risk-off environment. Given that Central Banks have committed to accommodative monetary policies and governments have committed to accommodative fiscal policies we would expect any significant slide to be a generational buying opportunity. We ask you to stay focused on the facts and long term performance of these assets. In the short to medium term it’s not going to be institutions that drives prices higher. The whales have control and when they move they show their direction by continuing to build their holdings.
If you are looking for investment advice call 949-298-7582 or email Bryan at [email protected]
Credit is due to Adam Pokornicky for the core of this letter. If you have any related questions you can reach him at [email protected].