The month of October was quite an adventure for Bitcoin and crypto investors. Continued weak price action dominated the majority of the month as the price of Bitcoin pushed down briefly below $7,400 on negative news flows and continued low volumes before a breathtaking explosion higher on 10/25 that led to a solid month-end close. From Bitcoin’s origin of impulse at $7,650 to its peak of $10,583, we saw a move of over 38%, the 3rd largest price gain in BTC history, with price eventually ending the day on Oct. 25 up ~17%.
So what happened and where do we go from here?
As we’ve outlined in both our August and September letters, the breakdown of Bitcoin to the $7,400 level was months in the making. With Bitcoin reaching that support zone on its charts that we have been marking as a buying opportunity along with slowing selling momentum and lower volumes, we received fundamental news out of China on the 25th, with President Xi Jinping in a widely televised speech urging the country to accelerate the development of blockchain technology due to its importance “major countries are stepping up their efforts to plan the development of blockchain technology. Greater effort should be made to strengthen basic research and boost innovation capacity to help China gain an edge in the theoretical, innovative and industrial aspects of this emerging field.” More on this later.
Despite this fundamental news, it’s possible that the explosion in price was driven by other factors such as CME futures expiration and Bitfinex using tether to manipulate the price of Bitcoin higher for their own gain. It’s no secret that overall interest levels in crypto have retreated over the past few months after the massive move in price from $4,100 in April to the highs of $13,700 in June. Volumes and search interest have waned and just like April when extremely bearish sentiment has set in and Bitcoin feels like it’s on the precipice of pushing to lower levels, we see unusual buying behavior in the form of indiscriminate purchasing activity regardless of price sensitivity of the course of 60 minute trading periods. Bitfinex, as we’ve mentioned in the past, is one of the oldest and largest crypto exchanges. They are under heavy legal scrutiny from the NYAG and key operators connected with their payment operators have been arrested. We mention this not to throw cold water on the rally and potential for higher prices but to add balance and perspective to all the factors that drive price and sentiment in the space. Back to China. The question remains, is China’s interest in Blockchain technology good for Bitcoin? On the margin, yes, but it should be noted that it is highly unlikely that China will adopt the use of decentralized technology and that their digital currency will likely be used as a mechanism for control. It has long been known that China has been working on a digital sovereign currency, named the DCEP. Moving forward it is likely that China will downplay decentralization when the People’s Bank of China officially launches its digital currency. Instead, the country will use blockchain as a way to modernize their currency rather than promoting the freedom it offers. That being said, whether it’s Facebook trying to introduce Libra, China launching the DCEP, or the EU considering a Digital Euro— Blockchain, Bitcoin and digital money have now been firmly inserted in the middle of the corporate, government, and central bank policies. If there was ever a question of whether not Bitcoin was here to stay, we believe it is unquestionably never going away. THIS IS INCREDIBLY BULLISH.
As we open the month of November, unfortunately, it's too early to tell if the price move last week will result in a break in the bearish market structure with continued upward movement from here or will resume its bearish positioning. There are a lot of positive developments for Bitcoin on the horizon that are extremely bullish including the May 2020 halving, which offset the waning interest from investors and traders which we believe to be transitory. Nonetheless, the price of Bitcoin currently is sitting above the 200d Moving Average at $9150 but below $9,600, a crucial resistance level which has served as support prior to the breakdown to $7,400. It is looking more likely to us that the market will continue to range in an unpredictable and confusing manner from now until the end of the year between $7,400 - $10,700. Clients and future clients should consider this an accumulation range and look for every opportunity to acquire additional Bitcoin, before the next larger move we believe is coming ahead of the May 2020 Halving.
What We Are Watching: ETH Update
As we mentioned in last month’s letter, a key theme that we are watching through the end of the year is the performance of Ethereum relative to Bitcoin. We believe Ethereum is bottoming relative to Bitcoin and will present a buying opportunity for clients interested in allocating a small portion of their Bitcoin investment to Ethereum. As we observe in the chart below, we are looking for one last final push lower towards the end of the year before recommending ETH has a buying opportunity relative to Bitcoin, with potential outperformance of 50-100%. While Ethereum has had its issues scaling its protocol and meeting the lofty expectations it has promised it’s investors and community, it’s developing a rapidly growing decentralized finance (DeFi) on top of it that is driving innovation and opportunity ahead. We will touch more on this in the December letter.
● China President Xi Publicly Supports Blockchain Innovation
● IRS Issues Crypto Tax Guidance
● SEC, CFTC & FinCEN Issue Statement Warning of AML/KYC Obligations
● Congress Holds Hearing with Mark Zuckerberg on Libra and Data Privacy ○ Paypal, Mastercard, Visa, eBay, Stripe, et al Leave Libra Project after getting warning letters from Congress
● Congressmen Ask Fed to Consider Developing A Digital Dollar
● Chainanalysis Helps DoJ Shut Down Largest Child Porn Site Ever
We’d like to take a moment to announce that we have executed the very first employer-sponsored 401k plan with access to Bitcoin with DAiM serving as an Investment Advisor to the plan. This is a huge development for us and one we look to accelerate into 2020. If you are interested in contributing a portion of your current employer 401k to Bitcoin, please contact us so we can reach out to your companies HR department on your behalf.
We are continuing to push for better custody and trading solutions and are very close to onboarding a new partner. Stay tuned for this announcement.
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].