It’s been an agonising few months for crypto enthusiasts who had to sit through a four-month bear market, but the green shoots of spring started to sprout over the last week as bitcoin (BTC) rallied to $40 000.
Could it be that the bear market is over?
Calling the end of the bear market is always a risky proposition, but the BTC floor at around $30 000 has been repeatedly tested in recent months and held its ground.
Moneyweb spoke to Revix investment analyst Brett Hope Robertson to get a sense of where we are in the crypto cycle, and whether cryptos are making a comeback.
Is the bear market in cryptos over?
This is always hard to truly tell, given we have so few data points on these crypto cycles. This, for all intended purposes, looked to be more of a mid-cycle pullback, similar to that of July 2013, though it is too early say if this is the end of it.
What gives us some hope about this comeback story is that some of the key indicators are showing strong similarities to that of 2013. For example, the stock-to-flow model, which looks at BTC in much the same way as commodities analysts look at gold or platinum. What this measures is the current stock of available BTC as a proportion of annual newly mined BTC.
The stock-to-flow ratio has been an incredibly accurate tool in predicting the BTC price over time and what this is telling us is that $100 000 is a potential price target later this year and into 2022.
Bitcoin issuance undergoes a ‘halving’ every 210 000 blocks mined, or roughly every four years, which means the rate at which new BTC is mined is halved. That constricts the supply of bitcoin and creates scarcity.
The last ‘halving’ was in 2020 and the next one is in 2024. Each ‘halving’ has historically been followed by a strong bull market.
At Revix, we argue that the current mid-cycle pullback – which saw an aggressive drop in the BTC price, to the tune of more than -50% from peak to trough – was really a pullback in the bull market which commenced in 2020, and which we believe will resume before the end of the year.
A good way to look at BTC on a chart is on a logarithmic scale, where instead of looking at US dollar price moves in the BTC, you are looking at percentage moves. Looking at a logarithmic scale graph of BTC you can see that the percentage gains were far higher 10 years ago than they are today. 2013 saw its mid-cycle high on the week of April 8, while the 2021 mid-cycle high was one week later in the week of April 12. The 2013 mid-cycle bottom was locked in on the week of July 1, while it seems like the 2021 mid-cycle bottom just got locked in around July 19.
Now, I know this could be just a coincidence, but the case for this ‘bear market’ being a mid-cycle pullback is ever-growing.
A bit of historical perspective always helps in assessing where we are in the market, and the logarithmic chart helps us do that.
It has often been said that Bitcoiners love volatility. What are the benefits of volatility and market fluctuations?
Regardless of the high volatility, Bitcoin has produced returns that far outweigh this risk. Buying the dips is a proven way to enhance your returns over time. Various strategies have been developed to take advantage of these market dips. A basic strategy would be to start buying cryptos you are looking to add from about a -30% dip and continuing to add every -10% dip (-40%) and so on.
That is definitely a workable strategy, but it may not work on all cryptocurrencies.
What has been proven to work is dollar-cost averaging – buying a fixed amount of BTC every month.
Going back over five years, if you invested $100 every month into BTC (total deposited: $6 100), that investment would have grown to $78 080, or a gain of +1 180%.
Investing $100 a month in Bitcoin over five years
Institutions are starting to show strong interest in bitcoin. Does this explain the recent rise in the BTC price?
It almost certainly accounts for some of the buying pressure we have seen of late. Goldman Sachs is one of more than a dozen groups applying to securities regulators to launch crypto-related ETFs (exchange-traded funds). The purpose is to provide institutional investors and public companies with exposure to decentralised finance (DeFi) and blockchain technologies.
ETF specialist company VanEck has applied to the US regulator, the Securities Exchange Commission (SEC), for an ether-based ETF. Another ETF specialist firm, WisdomTree, has likewise applied for permission to launch an ether-based ETF. Ether is the native currency on the Ethereum blockchain.
Just a couple of days ago, JPMorgan Chase announced it will provide all wealth-management clients with access to bitcoin and other cryptocurrency funds.
One indicator to keep an eye on is the so-called ‘whale wallets’ – that is, the number of unique addresses holding more than 100 BTC or more than 1 000 BTC. There are now about 18 000 whales holding more than 100 BTC and about 2 500 even bigger whales holding more than 1 000 BTC. The number of whales starting to buy again is slowly growing, and they are holding on more tightly to their BTC, which is bullish for the long-term price.
When is a good time to invest in cryptos?
It’s all about time in the market and not about timing the market. Unless you are an experienced trader (and even they get it wrong) most who try to time the market usually get hurt. As mentioned earlier, a far better strategy is to dollar cost average. Historically, that has been a successful investment approach with cryptos.
What’s a good long-term approach to crypto investment?
Obviously, coming from the finance space I believe the only true free lunch is diversification, therefore I believe investing in products that offer this is the best way to go. Revix offers these products, and specifically, for those new to cryptos, I would suggest investing in the Revix Top 10 Bundle, which spreads your investment equally over the top 10 cryptos as measured by market cap. This will give you broad exposure to the crypto market.
If you are looking to get a little fancy, you can even start investing in sector-related cryptos. At Revix we have other theme-based ‘bundles’ such as the Smart Contracts Bundle, which invests your capital across the five largest cryptos serving the emerging smart contract space. There’s also a Payment Bundle, which spreads your investment across those cryptos that are focused on facilitating digital payments.
Revix brings simplicity, trust and great customer service to investing. Its easy-to-use online platform enables anyone to securely own the world’s top investments in just a few clicks.
Revix guides new clients through the sign-up process to their first deposit and first investment. Once set up, most customers manage their own portfolio but can access support from the Revix team at any time.
For more information, please visit www.revix.com
This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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