Bitcoin Market Update | Week of July 26, 2021

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On Sunday night, the market found its direction with a short squeeze that took the price from $35K to $40K. This short squeeze was historic, the largest in Bitcoin’s brief history, and certainly not the last. This event changed the price direction and provided traditional market technicians (i.e., Wall Street) with confirmation of a continuing bull market.

What’s a Short Squeeze?

A short squeeze occurs when a large number of short positions are liquidated, i.e., forced to buy Bitcoin. This forced buying of Bitcoin leads to a rapid increase in price. As the price increases, a cascading effect occurs as more and more short positions become liquidated. It is essentially the opposite of the long squeeze of May 19 that brought the price down from 60K to 30K.

The underlying cause of the volatility leading to these events is two of humankind’s most challenging emotions: fear and greed. The result of short and long squeezes is typically a change in sentiment and

market direction.

Update on the Golden Ratio holding and GBTC Unlocks

It bears noting of the confirmation of two predictions we made that panned out:

The Golden Ratio will hold – this is the 1.618 FIB level, it has never been violated in Bitcoin’s history – and history repeated in this most recent market action.

The high number of ‘GBTC unlocks’ will be a non-event – this was in response to social media influencers predicting bearish market action due to GBTC shares becoming available. Instead, there was a reduction in the discount of GBTC and no appreciable selling of BTC on the spot markets.

What happens next?

If previous short squeezes are any indication, we should see price trending upwards for the next few weeks. At some point, we’ll exceed the ATH of $65K, which will generate new headlines and FOMO. The difference now is much of the supply has been moved from shorter term investors to longer term investors, as we can see from on-chain analysis. With a tighter supply will come even more rapid price appreciation.

Price Predictions

$100K per Bitcoin is very much in play and highly likely to occur before December 31, 2021, if Bitcoin’s market history is any indication. The setup is undoubtedly there; we have an alignment between global economic and geopolitical events, narrative and human action as reflected by on-chain analysis.

If Bitcoin surpasses $100K, I’m expecting to see rapid price appreciation from there, with prices potentially doubling or tripling in a relatively short timeframe, similar to the late-cycle action of 2017.

Within one month in 2017, from mid-November to mid-December, the price nearly quadrupled from $5.5K to 20K after a ~40% capitulation event. We’re seeing a similar on-chain setup this time around; the only difference (aside from greater adoption and market action) is the introduction of two new Bitcoin use-cases that have the potential to make the 2021 cycle’s price action more dramatic.

In 2017, to take advantage of an increase in Bitcoin’s price, investors had to sell and incur a taxable event. Some believe this to be a driver to the end-of-year sell-offs we saw in 2013 and 2017.

Alas, here we are in 2021, and Bitcoin is much more mature and of keen interest to investors worldwide. Moreover, investors can also enjoy the benefits of Bitcoin-denominated high-yield interest accounts and collateralized lending. These products will reduce the number of Bitcoins available to be sold during market downturns and may dampen late-stage market volatility.

That said, we’re a long way away from the end of this cycle. It has certainly been a wild year with too many events to count here. So I’m continuing to keep an eye on the buying and selling trends, identifying the market participants, and monitoring the nature of their custody solution.

Analyzing and synthesizing this mix of hard and anecdotal data has been, above all, the most valuable indicator of future-looking price action on mid to longer timeframes.