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Bitcoin: Get Your Hands on the New, Incorruptible Gold Standard

25 Jan 2023 : 13:04
10 min read

Do you own any Bitcoin? If so, you have bars of The New Gold in your portfolio.

We’re not exaggerating, because Bitcoin is well on its way to becoming Gold 2.0 of the world’s economy. Like gold in the old days, Bitcoin is well placed to become the backing of new fiat currencies that will sit on Ethereum’s blockchain.

And these currencies will be governed by their owners, not central bankers.

Bitcoin has been on a run recently due to a lack of sellers. The buyers pushed the cryptocurrency above the psychologically important $20,000 barrier, marking the strongest rally since the early summer of 2022.

In other words, it has withstood the most aggressive financial market assault since 2008, and come up smiling. To say this is a resilient coin is understating the case.

Resilience is one thing, potential quite another. Can this upwards trend continue? We think yes, and how.

Disclaimer: Not financial nor investment advice. Any capital-related decisions you make are your responsibility and yours only.

Primed For A Major Pop đź’Ą

To understand where we’re going with Bitcoin, it’s useful to briefly explore how we got here.

Looking at the above chart, there are several events that drove the coin’s value higher, then stalled it before the notorious declines of 2022.

The bull run of earlier this decade was sparked by the Fed’s aggressive money printing during the economy drain that was the early Covid pandemic. Given that, was it any wonder that people dived into Bitcoin as an alternative to fiat currencies?

That rally was cut short when the Fed curtailed its printing, then the decline really started to gather steam with the collapse of crypto operators Terra, Three Arrows Capital (3AC) and – especially – FTX. A suddenly better fiat market and a rapid succession of crypto operator failures didn’t exactly instill confidence into the market.

But bulls held on, and as a result the number of Bitcoin sellers dropped – witness the 31% decline in the crypto’s value after the 3AC debacle vs. the 22% immediately after the FTX scandal broke. FTX is a much, much larger entity than 3AC, so all things being equal, BTC should have seen a far greater drop in price. Another development evidencing seller exhaustion was a notable reduction in trading volumes.

Excellent. So Now What?

That’s a glance at the past; if we turn our gaze to the future, we see a lot to like.

We’re almost being literal here. The BTC futures market can tell us a lot about current market sentiment and levels of hope. After all, it’s where much of the trading in the coin takes place, and where the more adventurous and speculative investors place their bets.

Futures Market Health

This chart shows three critical factors in the futures market – BTC’s price, of course, its open interest (OI), and the funding rate.

Price is self-explanatory, meanwhile OI shows how much money is invested in BTC futures. What we want here is an amount that’s decreasing while the price goes up; you want shorts getting closed/liquidated to fuel the move higher. The funding rate is a measure of the fees paid by owners of perpetual futures (a specialty option in the crypto world). To put it simply, we’re after an average number that does not go up too much to ensure a healthy market without excessive leverage.

Both OI and the funding rate are in sweet spots, allowing the market to run up further without big liquidation worries.

Miners’ Health

Want some other bullish indications? Okay, then let’s talk about miner health.

The miners, for those unaware, are the humans and companies with powerful computer processors that create new Bitcoin. So the key metric for them is the BTC hash rate; we won’t bore you with the technical details, but this basically indicates how much computing/processing power is devoted to mining.

Computing/processing power, in turn, is reflective of capital being spent on the activity. So basically, the hash rate tells us how much miners are willing to spend to unearth BTC. A glance at the hash rate graph, with that sharply rising orange line, tells the tale.

We can also tell how miners are doing by the Puell Multiple (PM). Again, we won’t venture too far into the technical weeds, suffice it to say it’s essentially a measure of Bitcoin mining profitability.

Note on the PM graph that peak profitability coincides (surprise!) with BTC price tops. What’s more revealing, though, is that the recent PM lows are in the “green zone” which presages a big move northwards again.

Smart Money Moves

Now, let’s turn our attention to the BIG WHALES, i.e. the entities owning more than 10,000 BTC (imagine thatanchoring your portfolio. Whew!).

Obviously this is a small and exclusive club; it consists of fewer than 120 members. What’s interesting lately with them is that their numbers have increased sharply – look at that count pop towards the end of the 2022 bull market. More investors want to be whales, and with their size and power they can move the market. Do you really want to be betting against them?

Finally, let’s take a short look at BTC balances on exchanges.

The what on the what what?

This is simply the measure of how much of the coin is located on centralized exchanges, such as Binance or Coinbase. That’s in contrast to the amounts withdrawn to personal wallets.

Our old friend the orange line in this case shows quite a plummet since around last year’s Santa Time. We’re all familiar with supply and demand, of course, so a constricting supply of BTC – particularly during a bullish period – can be quite the spur for demand, and in turn a dramatic price rise.

So BTC is a clear and perfect investment now, right?

Of course it isn’t. There hasn’t yet been invented an asset that’s guaranteed to earn you an early retirement and millionaire status by age 40. As with any investment, particularly BTC, there is always risk.

Even at bullish times – well, especially at bullish times – it’s good to take a sober look at the potential downsides. So please indulge us while do so for a few paragraphs.

There are permanent risks with BTC that have nothing to do with the 2022 price swoon or the recent rebound.

A major one is that the ever-mysterious Satoshi Nakamoto, Bitcoin’s mastermind and creator, owns 1 million of the digital currency. That’s nearly 5% of the total supply that will be mined over the years.

He (or she, or they, or it, or… whatever) hasn’t yet sold  any of this, but should s/he/they/it even start, BTC holders would surely get rattled and react by exiting their positions. The results could be cataclysmic.

We love the miners and the work that they do, but they’re not in it for charity. After the next one or two halvings, they could shut down their high-powered GPUs and exit the business due to diminished profitability. BTC relies on these entities, so a big exodus can and will affect the cryptocurrency, and almost certainly not in a good way.

And there are those old favorites, the non-permanent risks. Regulatory scrutiny is one, with the U.S. Fed leading the way in promising to clamp down on cryptocurrency trading and other flavors of transaction. More big crypto firms could go under too, for example Digital Currency Group – a prominent venture capital company knee-deep in crypto – is teetering on the edge of bankruptcy (thanks to its exposure to, you guessed it, FTX). And we’ve all seen how a crypto player’s implosion can rock the market, particularly with BTC.

Cryptonary’s Take

So what does this all mean for you, dear Bitcoin investor (or would-be investor, if you haven’t already taken the plunge)?

It means that there’s a confluence of heavily positive factors supporting BTC’s price, which bar any black swan event – see above – should ultimately keep pushing it higher.

Being a cryptocurrency in general, and being BTC in particular, this rise won’t be smooth. There will continue to be dips and leaps due to what appears in the financial news headlines, (Fed pronouncements, measures of inflation, interest rate lurches, etc.)

Again, though, the many bullish indicators strongly suggest BTC will rise in price rather than drop.

We are very bullish on the currency. In fact, we feel the recent movements are the start of a new multi-week, generally upward trend that will, in the long run, pull it up to $30,000 and possibly even as high as $45,000. Our line in the sand for this is that the $19,000 support level must hold at all costs.

BTC isn’t the only cryptocurrency flashing a strong buy signal. For more on the top coin and multiple other assets that we believe will outperform it, please read this.

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