If you didn’t know Bitcoin was highly volatile, you probably do now. The grandfather of cryptocurrencies can drop $10,000 in value in 48 hours. The most recent decline was short lived. Leveraged bets got killed. Now we are returning to the “Bitcoin Moon” launchpad.
“Throughout the last week we have seen a total wipeout of leverage from the Bitcoin derivatives markets,” Will Clemente wrote as a guest analyst in Friday’s issue of The Pomp Letter on Substack. Since Bitcoin’s all-time highs two weeks ago, when it broke through $60,000, the open interest in Bitcoin futures has fallen by $8,912,806,107 across all major exchanges.
“The sell-off was also healthy for the market for another reason aside from the leverage wipeout; coins were washed from weak-hands to strong-hands,” Clemente wrote, adding that there’s been a pattern of new market participants selling as older market participants stay positioned.
“Throughout the recent drop in price, we actually saw dormancy go down, meaning old coins were not being sold and more experienced market participants held tight as they are accustomed to these huge price corrections in Bitcoin bull markets,” Clemente wrote.
Bitcoin’s been boring for years. It started to rise incrementally when the pandemic kicked into high gear in March. Traditional Wall Street firms that have been eyeing Bitcoin as a sort of gold-like inflation hedge starting buying. The price doubled in short order. Then in late 2020, Elon Musk started talking about it, and now you can buy a Tesla
“The growth rate of Bitcoin was somewhat pegged in 2021 due to the occurrence of the Covid 19 pandemic,” says Mehtap Özdemir, a member of the board at Caizcoin, a decentralized financial solution in Dubai. “Analysts predict Bitcoin will likely still record more growth, possibly hitting over $111k per token by the end of 2021. The market is growing,” he says.
Later this week, the CME Group
“I'd say any diversified portfolio is at risk if it doesn't include a Bitcoin allocation,” says Sebastian Bürgel, founder and president of HOPR, a Zurich-based network allowing for the private exchange of data without third parties being able to observe who is sending data to whom.
“The most valuable asset for any crypto project, including Bitcoin, is its community. The bulk of Bitcoin still lie with the believers who joined years ago,” he says. “I know several of these early investors who are holding over 1000-fold Bitcoins and if they are not selling to retail banks at $50,000 today,” he says, speculating that they see Bitcoin going much higher, perhaps higher than where Caizcoin in Dubai thinks it is going in the low six digits.
Cryptocurrencies started last week on a much stronger footing than the previous week, though over the weekend Bitcoin traded relatively flat. On Sunday morning in Shanghai, Bitcoin was down 0.16% to $57,656.
The threat of reversal again isn’t over yet. Some traders have become more eager to sell some of their position into rallies. Still, based on the Relative Strength Index of the Grayscale Bitcoin ETF, we are nowhere near overbought. We are right down the middle.
Newcomers to Bitcoin might get spooked by the volatility. Bürgel tells investors to relax. Buy Bitcoin, and forget about the ups and downs for now.
“A lot of investors are new to Bitcoin and I would love for them to just enjoy the real Bitcoin experience,” he says. “Bitcoin is not here to be held in a bank account. Crypto assets are about self-custody and empowerment of the individual. I strongly encourage every new investor to spend half a day on setting up a hardware wallet, make backups of their mnemonic and you will surely be ahead of 90% of the other investors. Along the way you will learn to appreciate Bitcoin, your first real money that you truly own, not a bank.”