Any expert that says this 20k level is the low in Bitcoin is lying. It is not a lie because it is not the low, it is because they can not know how low it can go. My low? In theory anywhere between zero and 3.500.
3 reasons for this blog (in English)
- Most Bitcoin owners have no idea why Bitcoin is crashing. Virtually all Bitcoin expert talk crap that needs to be put in perspective. How low can it go?
- Last week I wrote that there is a potential systemic risk in crypto. The 10% drop on Saturday morning (June 18th) was a clear signal. What are the consequences?
- The responses to my blog last week were overwhelming. To my great surprise many questions in English. The most asked question: Where will it go from here on?
Bitcoin is a sitting duck for professional traders with size. The raft of duck owners is confused, without direction. So they follow the experts. Virtually all experts hold on to the same chart-based nonsense to explain the last move and predict the next. Today (Sunday, June 19th), they preach the 200-day moving avg. Bullshit! No one can predict if that 200 days avg level will hold. The market lacks volume which means prices are easily manipulated. More importantly, breaking these so-called expert-levels increases confusion and lowers conviction. The consequence? Capitulation! People saying f@ck it, I’m done.
An example of what capitulation can do to a price: pre-Corona Unibail Rodamco (URW) was a highly regarded commercial real estate company. The stock traded ~200 euro, yielding 6%. URW was a rock in any equity portfolio. But come Corona, all stores closed down. No rental income, no earnings, no yield. Shareholders rushed to the exit. The stock dropped 85% to……30 euro. Today URW trades at ~50 euro, a meager 35% of the 130 euro book value. No recovery!
URW is a tangible asset, with real cash flows and a p/e of 6x. Even today it still traders at a 65% discount of book value. That means investors capitulated and 2 years later still say f@ck it. I have seen it happen so many times, companies failing, investors capitulating. Recent examples: Netflix, Zoom, Paypall, all down 70-80%. All failing to deliver on earnings and/or sales growth. The irony is that Bitcoin has not failed. The trading platforms, the storage units, and the experts became greedy. They failed, cheating for their own benefit. They have turned a systemic risk into their system default.
A popular saying in cryptoland is “not your key, not your coin”. In layman’s terms, you can store your Bitcoin safely on a hard disk. But if you stored it in a crypto bank like f@ck up Celsius, you might not have access to your coins anymore. Adding to the misery is the largest crypto VC, 3AC, which fears insolvency. It does not mean all crypto banks and crypto funds are down & out, but it will increase the fear of a domino effect. It will create a bank run. How could this have happened?
The problem was leverage and misinformation. Trading platform provided investors with leverage and Bernie Madoff yields. They are at risk of being sewed for every penny you ever made. Rightfully so. Misinformation was again obvious this weekend when I heard “experts” on Youtube and Spotify saying that the redemption of leverage is a good thing. How dare you say that now? Leverage is exactly what you should have warned your community about. On March 10th, 2021 your hero and Bitcoin whale Michael Saylor recommended everyone to mortgage their mother-in-law to max out in Bitcoin. All of you promoted his tweet at levels above 50.000$.
The near-term risk is that more platforms will be facing liquidity problems and closing down, even if only temporarily. If a platform can not deliver to the next, they are also forced to liquidate. Price drops forcing the next one out etcetera. And so platforms domino, capitulating. Not because they are all crooked, but because liquidity dries up when another Celsius happens. When LTCM crashed in 1998 the FED stepped in as they did when banks crashed in 2008. The Dutch government bailed out Dutch banks in 2009. Central banks bailed society during Covid. In Bitcoin there is no one to bail you out. What happens when people fear losses?
Where will Bitcoin go?
The recent price shocks are clear signs of capitulation. The 10% move down Saturday morning broke levels that experts feared. Was it capitulation or manipulation? Sunday Bitcoin snapped back. So my guess is that it was a single party’s capitulation on the way down Saturday with a touch of short-covering manipulation on the way up on Sunday. Chain analysis platform Santiment tweeted that the amount of Bitcoin on exchanges has decreased in recent days. Does that mean that Hodlers are buying? Doesn’t matter. What matters is that less liquidity makes it yet again easier to manipulate the price. That vulnerability means professional traders with size can move the market. In any direction. Why any? They do not care about direction, they care about the size of the move.
How high? How low? To quantify the low, I would anchor it at the depth where the most outspoken Bitcoin whale Michael Saylor drowns. At a level of 3.500$ he needs to cover his $/BTC loan and will be forced to liquidate his 100k+ position in Bitcoin. Professional traders can cover their shorts in the expiration of the whale. The high? Any fools guess. There is no fundamental or economic reference to price Bitcoin for future value other than it’s own history. It is neither nothing less nor pretends to be anything more than an alphanumerical code. The value is whatever it means to you.
What do I think short term? The market is wary of more problematic platforms like Celsius. Volumes are low. Positive tweets on Bitcoin still outweigh negatives 3:1. Experts still talk the same crap and Saylor is the leader of their pack. These are all negatives. Old market wisdom: avoid fear, hope, and greed. Greed is what pushed Bitcoin over 60k, fear is what pushed to down to 20k. The biggest fear, another Celcius, is very much alive. At the same time FOMO, The Fear Of Missing Out on Bitcoin has reduced significantly. I think small investors will use short-term spikes to bail out. However, small volumes allow big manipulation.
What do I think long term? I love the intentions of Sathosi. I love an economic system that is based on proof, not on trust. I love a society that is not based on greed or manipulation by institutions such as Central Bank. I do not like the bullshit experts and the misleading advertisements of trading platforms that cannibalize the minds and wallets of small investors. I own a little bit of Bitcoin to have skin in the game and I might buy some more in the future for a trend trade. But for now, I do not need to own it for anything more than that piece of skin.