The Breakdown - Worried About Bitcoin's Price Action? Here's Why You Shouldn't Be

Episode Date: March 27, 2021

Today on “The Breakdown,” NLW digs into bitcoin and crypto markets. He argues that despite two weeks of sideways-down price action, there are a set of reasons to be optimistic: Historically bad March months versus historically good Aprils Retracements and pullbacks in 2017  Analysis around options expiry in 2021 The continuation and expansion of the macro inflation narrative Institutions applying for bitcoin ETFs Coins leaving exchanges -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

The point of all of this is that whether your view is historical, technical, or fundamental, it all points in only one direction. This bull market is still just getting started. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, Casper, and Exodus, and produced and distributed by CoinDes. What's going on, guys? It is Friday, March 26th, and today we are going to talk a little bit of price action.

Specifically, if you're worried about Bitcoin's price action over the last two weeks, here's why you shouldn't be. So the last few weeks have been, for some, on crypto Twitter, Bitcoin Twitter, relatively rough. We're on our 13th day of downward price action from Saturday, March 13th's high of over 61,000. That can make people a little gloomy. The other day, as prices were ripping down, Bulley Esquire tweeted, No matter how many days like this I live through, they always suck just as hard. Now, as I've said personally over and over, I am not a trader. I am but a simple dollar cost averager and hodler, so the vagaries of price tend not to

overly stress me out. That said, at the early stages of a bull market, which I believe firmly describes where we are, price helps shape narrative and helps the asset climb walls of worry. And in terms of why I wanted to focus on this for today, it has been a truly exhausting week of congressional hearings and highest order macro battling with Powell and Yellen and the absurdity of yesterday's big tech hearing, so I am down for a little bit of market talk. So with that, let's go through a few reasons that I simply don't believe you should be stressing out about the current Bitcoin price retrace.

Let's start in the realm of historical precedent. Of course, my caveat for all of this is that past performance is no guarantee of future performance, And what's more, I think Bitcoin especially but crypto as a whole have a set of new dynamics that are going to make it increasingly difficult to draw long parallel analogies. This works not only to the downside, but as well to the upside. If you look at Dan Held's argument around a Bitcoin super cycle, it is fundamentally an argument that the underlying set of circumstances have changed for Bitcoin, particularly in terms of who is buying and hoddling now, in such a way that the easy patterns following and having

are going to have less and less explanatory power going forward. This excites many because it comes with the promise of more extended and bigger bull runs rather than the sort of one good year followed by three years of trash thing we've experienced. But still, net net, the point is that this makes history have less predictive power. So with that caveat out of the way, I still think it would be fun to do a little bit of historical analogy. The first is the March April tradition. March has been a down month in eight of the last 10 years between 2011 and 2020.

One of the biggest explanations that people have always pointed to is selling to cover taxes, which makes some logical sense. And of course, individual years have had their own contexts. March of last year was a little different, shall we say. Either way, there is a sense in Bitcoin that March is a historically bad month. In fact, no month has had more down results in the last 10 years. September comes in second with seven out of the last 10 being down. But what goes down must come up to invert an old saying. April has been a historically good month, exactly inverting March. Only twice in the last 10 years has April been down, and in those months it was down only 6% in 2014 and 4% in 2015. Now, to be clear, we are by no means down this March, but even if we were to

somehow end that way, perhaps you could take comfort in the idea of an April rebound. But here's another historical precedent. Let's talk about bull market pullbacks and retraces. To do that, let's head over to some wrecked capital analysis. In 2017, the average Bitcoin bull market pullback was 16 days. Currently, as I mentioned before, Bitcoin is in a 13-day retrace. In other words, this is nothing out of the ordinary for a bull market. In fact, wrecked capital has been doing pretty heroic work fighting back the people who are preemptively calling for a bare market. Here's another one. This is a direct quote from their tweet. In 2017, Bitcoin had 12 dips between 10% and 25%, and 6 major corrections between 30% and 40% in total 18 Bitcoin pullbacks.

But you can bet every retrace was met with calls for a new bare market. Success rate of those calls? One out of 19, only 5.2%. Bitcoin is currently in its sixth pullback in 2021. The point here, of course, is that bull markets aren't straight lines up. They have big pullbacks and corrections on the way, and we shouldn't stress about it when it happens. Looking for the best way to unlock your crypto's liquidity? nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR. Earn passive income, with yields of up to 12%,

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The end of each month of 2021 has seen a large round of Bitcoin options expire. Today is another such day with some $6 billion worth of options expiring. So first, let's look at what has happened for the past few months and then discuss interpretations. From the last Friday of December, when options expired, Bitcoin raced up 80% and then retrace 30% leading up to the last Friday in January's options expiry. From the last Friday in January up to about the last week in February before February's options expiry, Bitcoin ran up 99% before retracing again 26 around that options expiring date. After the February options expired, Bitcoin rose 44% only to come back down 17% since that

new all-time high of 61,000. So clearly, and you can understand why, there is a strong consolidating narrative around options expiry being a major driver of short-term price action. Mervatual did a great thread on this, and I'm just going to read a couple of the tweets. Coming into the 26th, we see that we have a huge notational amount of options expiration, almost 6 billion USD. Now, what this might lead you to think is, oh, we should see huge volatility this week in anticipation of the expiration. Well, maybe not.

If we go back in time to the week of the 29th of January, we can see that price action was almost magnetized towards a certain level, in that case, the 31K region. This plays into a concept called pinning. Pinning, to use the investopedia definition, is, quote, pinning the strike is the tendency of an underlying securities market price to close at or very near the strike price of heavily traded options in the same security as the expiration time nears. This doesn't always happen, but it is most likely to occur when there is significant open interest in a particular expiring option that is near the money. CoinDesk wrote a piece called All Eyes on Friday's $6 billion options expiry, and here I thought was the key quote. There's also the monthly expiration looming Friday in the Bitcoin Options market. Analysts have warned the max pain point where buyers have the most to lose and sellers

the most to gain would occur if the price plunged to around 44,000. The risk is considered remote but plausible. A senior editor at OKX Insights told CoinDest, quote, we're currently looking for support in the range between 50,000 and 48,000, any concrete signs of recovery are likely to show up after the Options Exbury on Friday. Indeed, this is becoming such an explanatory narrative that it's getting memed. Cryptobobobie tweeted this morning, I survived the Great Options Exbury of March 2021. Anyway, the point is that after today, things are likely to move and there are some meaningful signs that the Options Exbury has been keeping Bitcoin down rather than pushing it in the other direction. But let's shift now from technicals to more fundamentals and

talk some larger macro forces. First, macro from a policy perspective. The narrative that is driven institutions to Bitcoin over the last year is, of course, concern about inflation. While theoretically, improved economic functioning in a heavily vaccinated U.S. could produce the sort of growth that would force the Fed to withdraw its support for the economy, which would in turn reduce the stress to have some sort of inflation hedge like Bitcoin, the Fed keeps saying they're not going to do that. And what's more, fiscal policy is similarly expansionary. This means that the institutional narrative around an inflation hedge remains intact. It's just that they're now not looking at expanding balance sheets for COVID purposes,

but expanding balance sheets due to the ascendancy of MMT and the desire for big programs like the proposed $3 trillion infrastructure act. If you're interested in more on this, I'm planning on expanding on it a little bit on the weekly recap tomorrow. Finally, let's talk about whether we've seen a change in conviction on the part of those institutional buyers that have been driving the market thus far. Well, first of all, if the measure of institutional interest is Bitcoin ETF applications, the answer is a big, fat nope. Scaramucci's fund last week became the fifth to apply for a Bitcoin ETF and fidelity this week, by far the biggest

financial brand to yet throw their hat in the ring, announced their Wise Options ETF proposal. On top of that, Goldman Sachs has also filed to give themselves more options for Bitcoin exposure through ETFs, even though they're not, as was previously reported by some, filing a Bitcoin ETF application themselves. What then about bullish price predictions are those going away in this supposed bare market? Bloomberg analyst Mike McClone said that Bitcoin is, quote, well on its way to becoming a global digital reserve asset, a maturation leap in 2021, may be transitioning Bitcoin to a risk-off asset in our view. On top of that, he listed a potential peak price of $400,000 per coin, which leaves even the stock to flow ratio in the dust. So if the measure

of the bull market is bullish price predictions, check on that as well. However, ultimately, we should always be looking at what people do and not what they say. For that, maybe let's go over and have a gander on what's happening with Bitcoin on exchanges. Remember, when Bitcoin is leaving exchanges, especially in large chunks, it often reflects institutional buyers moving their coins to cold storage, i.e., they have high conviction over the long term. They're not likely to sell. If the market was turning, you would expect the opposite. You would expect more coins to be coming to exchanges so that they could be ready for quick sale. So what are we seeing? On Thursday, Glassnode reported that more than 1,365 Bitcoin were removed from crypto exchanges. This is the highest for any 24-hour period this

year. The interpretation, not only are institutions not leaving, they're gobbling the dip. Willie Wu tweeted, today we have a new all-time high in Bitcoin leaving the exchanges for 2021 and a new dip-buying prize to award. The point of all of this is that whether your view is historical, technical, or fundamental at all points in only one direction. This bull market is still just getting started. With that, guys, I will leave you to what I hope is a wonderful spring weekend. I appreciate you listening. I appreciate you hanging out. Until tomorrow, be safe and take care of each other. Peace.