Bitcoin DIP or RIP?

Welcome to the Stormrake Monthly Australian crypto market & education update.
For sophisticated investors who want to expand their crypto knowledge.
Written by Michael Milmeister with research from the Stormrake Team

* Original artwork by @AlixBranwyn

The death of Bitcoin has been predicted by experts every year since Bitcoins immaculate conception. However, Bitcoin has never died and has kept growing in value through extreme volatility. Those same experts often jumped on board after realising their mistake. Bitcoin will not die in 2021 either, but, does May's price action signal an end to the Bull run and $65,000 USD remaining as the year's high?

Summary:

If you are a busy investor that doesn't have time to read this whole newsletter here is a brief summary:

* Markets have had their biggest correction for a year
* FUD over Chinese ban, Elon Musk and Tether drove prices down 
* Analysis below shows that this may be a DIP rather than the end of the Bull market or the end of Bitcoin.
* Monthly reports will come out at the end of the month for Stormrake clients
* The Stormrake team is currently researching opportunities in the DeFi space. Contact your broker for details.

or Read below for all the detail.

DIP or RIP

DIP: A DIP is a temporary fall in price followed by a recovery
RIP: For the purposes of this newsletter this will mean the end of the 2021 Bull Run.

1. Fundamental Events

What Fundamental events have led us to this price fall? A billionare's tweets are certainly impactful but not fundamental. Chinese ban? Well, you can only ban once, not every time you want to buy some cheap bitcoin. They did this in 2017 and in 2021 I just don't believe them. Either way bitcoin moves on and survives via its global network so this isn't fundamental. I would consider a competitor that smashes bitcoin to be fundamental but there is nothing like that around and it would need to be 10x better. A new flaw discovered in the Bitcoin code would also be a good reason to short bitcoin but alas there is nothing like that. In summary, the news we've seen should not have dropped the price 50% so it feels like a DIP rather than RIP.

2. Price Comparison

My birthday falls in the month of May and as always it's a reminder that time only goes in one direction and my memory is not as good as it used to be. My memory of the 2017 Bull Run was that of complete euphoria and constant price appreciation. In fact, there were 2 major corrections. Below, I compare the main 2017 correction to the current 2021 price action. Prices passed $3,000 for the first time ever, only to fall well below $2,000. It was almost a 50% fall. The top graph is 2017 the bottom graph is 2021. Would you be able to tell if I switched them around? Had you sold in 2017 at $1,700 you would've missed out on the price hitting $20,000 in December and of course the current price of $39,500. Thats a 23x increase.

Here is what happened to Bitcoin from $1700 to December:


It was roughly an 11.76X increase from the DIP. That implies a $352,941 USD price for Bitcoin at the end of this cycle if the same thing happens. That's not a prediction :) 

3. On Chain Fundamentals

Meanwhile on-chain fundamentals look better than ever. 

Number of active addresses for Bitcoin is climbing ever higher. Number of small active addresses is constantly climbing even despite the price action. Mining Difficulty keeps rising as more miners come in and improve hashrate and decentralisation. And while price goes up volatility is consistently going down. In short, on chain fundamentals are not showing anything that should lead to a bitcoin fall.



4. Leverage & Exchange balances

The first wave of selling cleared out leveraged longs like never before. The amount of leverage in the system was enormous with funding rates on perpetual futures sky high across crypto exchanges. After the first wave we saw record liquidations. The benefit of all that today is that funding rates are low, lending rates are low and a new wave of buying could gather significant speed if traders leverage long again. 



Overall, my opinion is that we are still midway through the Bull Run so it would be a brave call to SELL now.

Let's get into the report:

Markets 

Bitcoin is currently trading around $39,500 USD after posting an ATH of almost $65,000 USD last month. Tether is now the 3rd largest coin benefitting from the fall in price (being a stablecoin). Bitcoin has outperformed on the way down (in comparison to alts).

 

* Top 8 Coins by Market Cap thanks to Coin Gecko

 

In the NEWS

1. Ray Dalio (The man who made last months Stormrake video of the month) confirms that he holds Bitcoin 
 
The Billionaire investment guru confirmed that he is a holder of BTC and was quoted as saying "I think bitcoin's greatest risk is its success" meaning that Bitcoin will succeed as long as the governments of the world keep doing what they are doing and showing the world why we need bitcoin. His investment is significant because it adds to a growing list of traditional investors leading the move to bitcoin. 

2. Elon's schizophrenic market movements

One man's immense power and resources are affecting the value of the 1.5Trillion Crypto market.
8th Feb - Tesla announces it has bought Bitcoin and plans to accept it as payment for Tesla cars
13th May - Elon announces Tesla will no longer accept Bitcoin due to environmental concerns
16th May - Tesla confirms it hasn't sold its bitcoin
25th May - Elon tweets that he has met North American bitcoin miners and it "looks promising"

The two biggest candles are related to Elon. 

3. China crypto ban (Again)

One of the forces that drove prices down in May was further pressure from the Chinese government. This happened in the middle of the 2017 Bull run also yet Chinese citizens are among the most well versed in crypto and mining. There are rumours circulating that this is a deliberate ploy to lower prices and top up on their own holdings. 

Bitcoin Dashboard

Geographic spread is really important too.

* special thanks to bitnodes.io

The better the geographic spread the less chance of any country or conflict to impact the network. Australia has over 100 nodes which is great but not as many as Sweden (101). China is surprisingly low on the list coming in at 8th.

There are almost 2000 nodes run over Tor. These are private and could be based anywhere in the world.
 

Stock to Flow Valuation:

Monthly Memes
 

2. Morrison weighs in:

3. Scam:

Until next month, Happy Investing!

Stormrake Team

custody@stormrake.com

General Advice Warning 

The information provided in this newsletter is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information contained here you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Therefore, before you decide to buy any product or keep or cancel a similar product that you already hold, it is important that you read and consider the relevant Product Disclosure Statement (PDS) of the product provider to make sure that the product is appropriate for you. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice. You can get a copy of relevant PDSs from Stormrake by email custody@stormrake.com. 
 

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