crypto strategy

BITO and Bitcoin: history does not repeat itself, but it rhymes

Vertigo3d

Summary of the thesis

The thesis is simple – almost everything points to this being a major capitulation event, the first we’ve really seen since 2018 when Bitcoin (BTC-USD) fell more than 30% in just two weeks.

You could say that there was another such event in 2020, during the liquidity crisis, but it was a generalized event that affected more than cryptocurrencies, and so I would say that this was not quite the same type of surrender.

During these sellout events, all of these same headlines and perma-bears come out of the woodwork – swearing that Bitcoin is going down to <$3,000 or even $1 or $0 because it’s basically worth nothing in their minds. The same question of the legitimacy and security of cryptocurrencies and Bitcoin is raised - although on-chain security is not affected at all, and the reality that it is only an action on the price, not a security threat or vulnerability.

With Bitcoin trading at a 2 year low, back to where it was in price just as the inflation narrative took off in 2020, the pot odds here are fantastic – almost nothing has to go right for the cryptocurrency goes up.

I think the best way to play is to go long via ProShares Bitcoin Strategy ETF (NYSEARC:BITO) due to the lack of currency risk combined with the availability of options, as it is not spot Bitcoin but rather a forward derivative that has no custody risk.

The similarities are everywhere

For people who have not experienced these events before, they can be nerve-wracking, especially if you are heavily invested in cryptocurrencies, as everything is in question during these events. The very fabric of space often seems to be collapsing, with exchanges collapsing or at risk of collapsing, user funds potentially dangerous or stolen, government regulations or bans being rumored, and more.

Going back in time to the crash of November 2018, which was the final capitulation of the 2017-2020 bear market where the true bottom in sentiment, interest and weekly price was reached, there are many similarities with today.

It’s almost uncanny how many similarities there are, with these two happening around the same time the US midterm elections took place – both times in November.

BTC Chart Price Action

Coinmarketcap BTC Chart (2018)

Another similarity is volatility; both periods had the previous few months filled with apparent disinterest, nothing happening and extremely low volatility compared to the past.

Coinmarketcap BTC Chart (2022)

Coinmarketcap BTC Chart (2022)

But the similarities don’t end there, with Google’s trend charts also showing an almost identical picture over the period, with search interest slowly declining over the previous months before prices crashed. .

Google search trend data (2018)

Google search trend data (2018)

Google searches for “Bitcoin” globally dropped from around 75~ in mid-August 2018 to around 45~ just as the market bottom dropped and the crash began. This represented a roughly 40% drop in related searches globally over the 90-day period before the crash.

Google search trends data (2022)

Google search trends data (2022)

Similarly, in 2022, Google’s trending data for the search term “Bitcoin” fell from around 85 to 55, representing a 38% decline in relative search interest worldwide over the course of 2022. of the last 90 days preceding this decline.

I can go on chart after chart, similarity after similarity, but the reality is that the situation in 2018 was very different than today – there was no liquidity crisis among the biggest crypto exchanges. There was also no real risk of a cascading collapse of other platforms/exchanges.

History does not repeat itself but it rhymes

The situation today is different from that of 2018, the macro environment has evolved, the risks weighing on the markets have changed and many things have changed – yet there are many similarities between this capitulation event and that of 2018 .

I would argue that this capitulation event is NOT caused by SBF and the potential collapse of FTX (FTT-USD) but that’s more the reason why we collectively decided to panic.

No one has been interested in crypto for months, interest has continued to drop to next to nothing – down almost 40% in the last 3 months alone. Volatility contracted as no one dares to bet on the upside, nor on the downside as Bitcoin was in an area that most people thought was reasonable, but uncertain – with no catalyst to drive it up or down.

People largely didn’t take the plunge and stayed long, as with inflation not seeming to be rising, hawkish monetary policy and a potential economic crisis on the horizon, there was a lot of uncertainty, but with Bitcoin so low, why would you sell after you’ve already eaten the majority of the loss?

That’s what people thought – until they woke up to see that Bitcoin and Ethereum (ETH-USD) which has been largely stable for many months now, in an “accumulation zone”, falling 25% -> 30% in a few days with no certainty that a bottom will be reached – all facades of stability are gone .

New York Times article titled "Is this Crypto's Lehman moment?"

New York Times (https://www.nytimes.com/2022/11/09/technology/cryptocurrency-binance-ftx.html)

They woke up to this reality after checking their portfolio, or seeing stocks like the one above, with a taste of blood in their mouths, feeling uneasy about losing another 1/4 of their investment.

What if Bitcoin goes to $3,000? What if that stupid internet money had no value? What if the United States banned and regulated everything to oblivion about it? What if FTX had supported the price of Bitcoin? Oh my god what about Tether (USDT-USD), is this the time when they are regulated and turn out to be a Ponzi?

Cold shivers rush over them, they connect and they vomit – selling at whatever cost they can as fear creeps in that they might lose it all – as doubt creeps in that the bears are right.

It shifted everyone’s mindset from “a bottom is there, we’re accumulating in the next rally” to “why do I own this trash?” as they awoke from their complacency. SBF and FTX could be bailed out and this revival will not pass, it was simply the excuse, the event, that had everyone collectively freaking out.

up to my neck in terror

Right now Bitcoin is around $1,000 off its overnight low at around $16,500 ~ and I can’t find a single soul ready to buy. Not one.

With the high buy odds, you might be thinking I’m going to say it’s only high and far from here – and everyone is wrongly scared. Unfortunately, I can’t say that – everything is going from bad to worse.

The official Binance Twitter announced the cancellation of the FTX deal

Official Binance Twitter

Previously, this all seemed to be swept under the rug and Binance (BNB-USD) was going to absorb FTX and solve this problem – but with them moving away from any dealings or association with FTX, that possibility disappeared.

There is no rescue. There is no bailout. There is no help.

Currently, there is no real substantial data on how problematic this situation is, how much client funds are missing, missing, or lost, or what FTX’s current balance sheet is.

The deafening silence returns

To make matters worse, until this morning FTX and SBF had gone silent since November 8th, which has only been done by companies going straight to Chapter 11 bankruptcy and surveys.

The uncanny similarity to Celsius Network (CEL-USD) and other crypto-lending platforms, which have also chosen this path, hits me – and shouts that the likely outcome of this situation will not only not be mild, but will be much worse than what people are expecting. ‘wait.

There is no rescue. There is no bailout. There is no help.

Carry

God help us all – the bottom is down and I can’t see the ground under my feet – all I hear is screaming.

That’s exactly how it sounded and felt during the November 2018 crash and the COVID-19 crash in 2020 so I’m staying long adding reluctantly to those levels with a sick feeling in my chest as I’m forced to raise funds and deleverage other investments to support my cryptocurrency portfolio.

The bottom should be inside or close to it – and in time we bulls will likely be called lucky bottom fishermen when the crypto market returns to normal or starts to rally from from these lows in the near future.

Actionable takeaways

I love providing actionable takeaways, exchanging ideas for people in my articles, but I can’t really provide one in this case – every exchange would be based on speculation and opinion and at extreme risk.

With one exception.

If you want to go long the asset class (or I guess short), consider buying mid-term spreads, an example being to buy the 7 put options from January 20, 2023 and sell the 12 put options from sell at the same expiration – achieving a mid-price breakeven (market) with upside capped at $253 and downside capped at $247.

This would limit the downside risk in either direction depending on whether you did the above (go long in BITO/Bitcoin) or the other way around (go short in BITO/Bitcoin) and provide an investor with a way to expose themselves without taking extreme risks. actually holding the asset currently bear.

Risks to consider

If you didn’t get the hint, bulls like me are about to be skinned alive by the market. Within days, if the true impact of this ordeal turns out to be catastrophic, we could all join in the screams with everyone else – quickly falling into the abyss without seeing the bottom.

Those without a risk tolerance capable of sustaining a total loss of capital should probably avoid all cryptocurrency products until this whole situation has played out.

#BITO #Bitcoin #history #repeat #rhymes #crypto strategy

Related Articles

Back to top button