The Bitcoin Cycle Among Cyclical Headwinds
Many in crypto have called for a bitcoin parabolic run by the end of the year. In November, we even saw a BTC all time high at $69k. Yet there is no parabolic run to be seen. No Santa Clause rally.
Here I try to piece together where we are in the broader crypto cycle and where we might go. Just an opinion, could always be wrong.
TLDR
Institutional money flows will keep the crypto markets from nosediving too hard, unlike previous cycles where we saw 80%+ drawdowns
As the Fed tries to raise rates, all assets will perform poorly (December 2018 crash, anyone?)
The Fed pivots to a loosening policy by end of Q2 and a new narrative develops that bitcoin and crypto could be the answer to the monetary madness
Detailed View
Where We Are
The crypto asset class continues to be the fastest growing technology ever, yet the cycle has been slowed down by three factors in my view:
Monetary Policy tightening. The Fed tapering plus increased market expectations for rate hikes has slowed down all asset prices. Crypto is fringe and slows the most
Retail Consumer Spending
Institutional Money Flows
Where We Are Going
All these points are cyclical in nature. Yet we have a major secular tailwind of adoption and institutional money flows. So what happens at this point?
If Light is right on institutions, we should see institutional allocations in Q1.
This is with a tight monetary policy leads to a market with competiting forces.
There is a strong case for Q1 to have a strong tailwind of adoption and institutions allocating to crypto.
If we do see big funds allocate, there will be a call for the parabolic moves seen in 2013 and 2017, but with a monetary tightening headwind, expectations will likely not be met.
I expect people in crypto will begin thinking the insane gains of the past will stay in the past, yet this is right as we see the Fed backed into a corner
Around next summer is when the Federal Reserve will complete tapering and try to raise raise rates.
My expectation is that any rate hikes will cause cascading affects across all asset prices. The Fed will pivot (like December 2018) and we never hear of raising rates again for a very long time.
A new narrative will develop by the mainstream that crypto is the solution to the monetary madness but that is too far down the horizon to really speculate on.
This is just my developing view and much needs to happen for it to occur. Could always be wrong but it is clear crypto has a tailwind of institutional adoption and a headwind of monetary tightening which is breaking the historical bitcoin halving cycles.
Authored by Derman Capital (Twitter)