Market Lab Report / Dr. K's Crypto-Corner
by Dr. Chris Kacher
Quantum Poodles Bringing Billions to Blockchain™
This article by Tyler Durden was just published: https://www.zerohedge.com/crypto/crypto-clubbed-overnight-what-happens-next
A little knowledge can be a dangerous thing. I like some of Durden's articles though in this case, he overweighs the negative while grossly underweighing market context. Ultimately, it stirs more FUD which is ultimately good as it discourages buyers. Too many buyers at once can cause even more volatility and push the price of crypto into overheated territory as measured by metrics such as SOPR.
The article deals with the recent sharp pullback in bitcoin and ethereum. This has led to speculation that ethereum going live on the CME futures tomorrow will trigger a major top. Back on Dec 18, 2017, bitcoin went live on the CME futures which was the absolute top for bitcoin. The concern that history will repeat ignores context. The cryptomarket had skyrocketed all year. Bitcoin had soared from old highs around $1100 to its peak just under $20k for a near 20-fold gain. A number of key metrics were showing a potential major top such as bitcoin's S2F (stock-to-flow) which was well ahead of bitcoin's price. Bitcoin's SOPR (spent output profit ratio which measures the variation between the purchase price and the sale price of coins moved on-chain) had also shot into well overbought territory, a metric that has had a 100% success rate in identifying tops in bitcoin to within a few weeks. Of course, at climax tops, leaving the market early can be very costly in lost profit opportunity since prices tend to go ballistic at the end of such tops, so I use various metrics such as the price performance of the leading small to large altcoins to gauge market health.
In addition, Wall Street thought of bitcoin as having no value, thus very prone to being shorted. There was scant institutional involvement and no companies owned bitcoin. So on the CME, institutions could easily drive the price of bitcoin lower. In today's environment, such actions could be deadly since bitcoin and ethereum are just getting started. Bitcoin hit a new high in early 2017 and in Nov-2020. Based on chart history, it appears bitcoin is still in the earlier stages of this bull run. Ethereum hit a new high the other day.
In addition, the supply scarcity of bitcoin caused by the likes of major corporations and institutions such as PayPal and Grayscale scooping up bitcoin naturally creates intense buying pressure. Real utility has arrived for cryptocurrencies unlike in 2017 when most everything was still in theory. Barring a black swan, to suggest this bull market is over is laughable.
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