Bitcoin Reaches $16,000

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Bitcoin ended the week above $16,000 as prices continue to trend upwards toward $20,000.  Any sudden surges around the $20,000 area might portend corrective price action back down to these current price levels.  Longer consolidation towards the all-time high around year-end might indicate a more sustained boom cycle next year above $100k or $200k.  

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For example the chart above shows the tail end of the 2017 Bitcoin boom cycle when Bitcoin went from $8,000 in late November and hit its peak above $19,000 in mid-Dec ten days after it surpassed $14,000 in early December.  The price was back down below $14,000 several times one to two weeks after the all-time high.  Hence we witnessed a very short-lived speculative mania at the tail end of a boom cycle in 2017 and the same thing happened in 2013.  Longer term consolidation is important for sustained price movements.   In this cycle unlike 2017, Bitcoin has already consolidated above $8,000 for over 6 months. 

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Bitcoin dominance dipped slightly about 1% from last week to 64.65%.  

Stocks, Bond Yields, Gold, Dollar

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The SP500 is at the upper end of it’s all-time high so there should be resistance at that level.  

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The Nasdaq 100 is in the upper end of the range between the all-time high and the 3-month low around 10,800, but is much further away from the all-time than the SP500.  Hence that might imply that the SP500 might be more likely due for a price correction. 

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Gold is near the 3-month low in Oct. so we may see a rebound in gold.  The COVID vaccine announcement seems to have made investors more optimistic about the economy leading to a sharp drop in gold, but that may be good time to shift more into gold for the longer term. 

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The US dollar strengthened slightly from 3-month lows last week, but remains near 2020 lows. 

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The 10-yr Treasury yield fell to 0.88% from last week so it will be interesting to see if this is a reversal of the upward trend that started in August or if rates will continue to climb.

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The High Yield OAS increased this week and this may be an early signal of a trend of increased credit risk concerns. 

Bitcoin Internal Fundamentals

In recent news, JP Morgan analysts highlighted the significant investment inflows into the Grayscale Bitcoin Trust relative to Gold ETFs and noted that investors such as family offices who previously invested in gold ETFs are increasingly looking at Bitcoin as an alternative to gold.  Furthermore a famous investor hedge fund manager Stan Druckenmiller mentioned he was short the dollar and is an investor in Bitcoin.  Druckenmiller was famous for his bet against the British pound in 1992 when he was managing the Soros Quantum Fund.  High profile investors such as Druckenmiller, John Paul Tudor Jones and Bill Miller should continue to enhance Bitcoin’s reputation amongst institutional investors.

Lastly Willy Woo provides some insightful charts on Bitcoin fundamentals in his newsletter.  

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Net outflows from exchanges indicate that people want to hold on to Bitcoin instead of sell or trade on the exchange.  We see significant recent outflows as a bullish indicator.

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Net outflows from exchanges are at a 5-yr high and further suggests people are taking long term bullish positions.

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Larger investors are purchasing Bitcoin at higher volumes according to this @glassnode chart. 

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The chart above shows even more accumulation from large Bitcoin holders (courtesy of @whale_map on Twitter)

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Willy Woo’s spent output profit ratio (SOPR) estimates how much profit investors have made selling Bitcoin to others using on-chain data.   The high amount of profit taking suggests prices might pause or correct before moving upwards.

Conclusion

Overall the long-term internal fundamentals for Bitcoin are strong and macroeconomic indicators are generally positive.  There has been more profit taking as Bitcoin has risen in the last couple weeks and there is some negative short-term credit risk trends to keep an eye on.  This may be a time to take more measured approaches to accumulation until further consolidation or until prices correct.

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