Bitcoin Market Update | Week of August 2, 2021

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In this week’s update, we’re going to dig a little deeper into understanding how some of Bitcoin’s unique attributes give us a level of predictive power that can’t be found in any other asset or commodity.

Bitcoin’s Predictive Power Explained

One of the things I love most about Bitcoin is its blockchain. The Bitcoin blockchain is an open and auditable ledger of every UTXO (unspent transaction output), transaction, block, and many more pieces of data that represent the permanent record to Bitcoins history. If you’ve ever sent some Bitcoin to someone else, that transaction is permanently stored in the blockchain for eternity.

We can analyze this data to identify patterns and trends that could help us determine how and when to invest in Bitcoin, or sell Bitcoin. Companies like Glassnode and Cryptoquant make analyzing the blockchain easy by providing a user-friendly interface with tools and relatively popular metrics.

If that weren’t enough, there are a few more unique properties of Bitcoin that empower us to understand what’s happening under the hood reasonably accurately:

  • Bitcoin is perfectly scarce, there are currently 18,773,597.75 Bitcoins as of August 1, 2021, @ 9:35 PM EST. There is nothing else that can be audited so easily, precisely, and with unforgeable consensus.
  • In addition to Bitcoin’s perfect scarcity, it also maintains an unalterable supply curve. This means that the rate of new supply will always remain the same. Until sometime in 2024, every mined block ‘releases’ 6.25 BTC to the total supply. There is no way to speed this up or slow it down regardless of the price action. With virtually every other asset and commodity, an increase in the rate of new supply is the natural economic response to a rise in price. As an example, as the price of a barrel of sweet crude oil approaches $100, oil producers are incentivized to produce more oil to meet the demand and take advantage of the recent higher prices. Price begins to decline as supply meets demand and inevitably overtakes it.

 

When illiquid supply is at an all-time high, a supply crunch is incoming

Illiquid supply is defined as the number of Bitcoins that reside in deep cold storage, these are Bitcoins held by long-term holders. They’re not sitting on an exchange to be quickly sold – these Bitcoins being owned by long-term convicted holders are not available to be sold thereby reducing the number of available coins on the market.

A look at the number of illiquid Bitcoins shows us that between April 12 and today, 200K Bitcoins were sold to conviction. The price on April 12 was $59K, compared to today’s $40K. This means long-term holders took advantage of the mid-cycle correction to buy Bitcoin, making these Bitcoins unavailable to new investors. The net effect is a hardened supply of available Bitcoin that is more inelastic to demand, which will result in a rapid increase in Bitcoin price over the coming weeks.

We’re in a particular moment in Bitcoin’s history that represents a fantastic risk-managed entry-point for investors.

As we covered in last week’s update, the 2021 mid-cycle correction failed to violate the 1.618 Fibonacci level at $30K confirming for market technicians (ie, Wall Street) a continuing bull market.

More importantly, we’ve seen an incredible recovery over a 10-day period that drove the price from 30K to 42K, a 25%+ gain.

This begs the question, how did Bitcoin perform after the previous 10-day ‘green candles’?

Let’s first look at the 10-day streak that occurred between Dec. 24, 2020, and Jan 2, 2021:

After gaining 53.82% in 10 days, the price went on to gain an additional 70% in 90 days.

Let’s also take a look at the 10-day streak that occurred between October 6, 2017, and October 15, 2017:

Key Takeaway:

Bitcoin’s simple supply/demand dynamics, coupled with an incredible level of data and transparency provides us with the predictive power of determining where the price will move on mid to longer timeframes – the longer the better.

A supply crunch is on the near horizon, we should see rapid price gains over the next few weeks and months. This moment in time is one of the best risk-managed entry points in Bitcoin’s history as we’ve come out of the mid-cycle correction posting 10 new green candles.

My base case is we’ll see rapid price increases with limited volatility between now and $65K, after surpassing $65K we’ll see an uptick in volume and volatility on the approach to $100,000 at some point in the next 2-4 months.