2020 Market Update 001 - January in Review

Leading Narratives: 

Few markets are as driven by narratives as the Crypto Market. Here are our hot takes on the top narratives that were prevalent in January:

Source: @Travis_Kling

1. iran-usa

2020 couldn’t have had a more tumultuous start than with fears of a third world war. After the US assassinated one of Iran’s top generals, the two nations faced off not just verbally, but with a quick sequence of military actions, leading to Iran shooting missiles at a US military base, as well as accidentally shooting down a commercial airline. 

In 2019 we have experienced bitcoin functioning as a safe-haven asset amidst all types of calamity, such as during the US-China Trade Wars and the Hong Kong protests. As the graph above shows, bitcoin, gold, and crude oil all spiked upon news of war, and all experienced pull backs as the situation de-escalated. 

The spin? If there was to be war between the US and Iran, freezes and sanctions would firstly force Iran out of the traditional financial system, and perhaps transition to bitcoin. Secondly, should this war extend to be a global conflict as Israel jumps in to support the US, and Russia/China come to defend Iran, it is likely that Russia and China would seek to end the dollar standard. In either scenario it could be the governments themselves buying up bitcoin, or simply the wealthy residents being worried about the stability of their home currency. When it’s unclear who will be the victor, many may choose a neutral option in the middle until the fog clears. 

2. Coronavirus

If threats of world war III were not enough, 2020 also presents us with one of the most threatening viruses we’ve seen in a while. At first I had to chuckle at the idea that news outlets are running the story that bitcoin is rallying because of the virus. The news will always find a reason why the price is going up or down. 

While the news missed the real spin, I had a contact of mine talk with some chinese VCs and it turns out that a lot of wealthy Chinese are trying to exit both the markets and the local currency in fear of an economic ‘crash’ (their word not mine). And as it appears the only feasible way to do so is via bitcoin (again their words not mine).

These were concerns that were prevalent before the virus, but with a highly transmissible virus in the heart of the most populous country on earth, additional challenges are presented. The more the virus spreads, the more the chinese economy will suffer. Entire cities are shut down and people are ordered to stay inside. Currently the virus is spreading at around 41.25% a day. If the rate of growth is kept up, it will have infected nearly 2 million people by February 15th, and the entire world population in 40 days. Let’s hope the authorities can detain this as soon as possible, as lives are at stake.

That said we can’t ignore the possibility of a major emergency situation in China, which would likely lead to significant capital flowing into the crypto markets as wealthy investors are trying to financially flee the country. 

3. Institutional money

Bitwise published its 2020 survey of financial advisors’ interest in cryptoassets. The numbers that floated around most in the news were that while only 6% of financial advisors currently incorporated crypto assets into their client portfolios, 13% were considering an allocation in 2020, showing a growing interest and comfort level amongst gatekeepers. 76% of advisors reported fielding questions from their clients about crypto assets in the last year.

It’s that time in the bitcoin macro cycle where both retail and institutional investors realize that bitcoin STILL is not dead, and that maybe, just maybe, there is more to it than it being a mere speculative bubble. This stage, last experienced in 2016, seems to be re-emerging as both ex-crypto investors and new entrants, or as we like to call them, “no-coiners” are entering the market.

our past & future predictions

Predictions from q4 insights:

“Bitcoin is in a peculiar situation. A quick glance at the charts gives reasons to worry as major moving averages have turned bearish. However, taking a deeper look at our over a dozen macro signal indicators that have correctly called historical tops and bottoms tells a different story. We may be approaching a second bottom and structurally are still within a macro bull move. While many are getting uneasy, this may just be one of the best high reward/low risk entries we will experience this cycle.

What appears most likely is that we may turn around any moment now with years of upside ahead of us. The alternate risk is a short term (3-4 months) extended correction (5-6k range). While a lower correction is possible, it is highly unlikely until these levels are broken. Therefore, we remain bullish until the $6k levels are breached. Since bitcoin’s health determines the direction of the entire crypto market, we use it as our analysis subject of choice due to its extensive data set.”

Result: 

We correctly called the bottom allowing us to take full advantage of the rally from the start. Bitcoin never broke $6,000 and thereby stayed within structure as we expected. 

Short and long term prognostic:

Short term (2019)

While we don’t exclude the possibility of a slow month and a potential retracement to $8,900, momentum indicates that we are likely to have another 1-3 months pushing prices higher, as we officially broke out of the 6 month bear trend but also broke through the 200MA. We do not expect bitcoin to break the all-time high before the halving. In fact we expect the rally that started in January to continue into March/April and breach levels as high as $14,000 - $16,000, in anticipation of the halving. As the infamous crypto saying goes “buy the rumor, sell the news”, we expect a major rally in anticipation of the halving, however we also consider the likelihood high of a significant pull back around the actual halving date (you’ve been warned, I will refer to this should you write me a concerned message “but Felix you said the halving would drive prices up, why are things falling?”). We anticipate this, and aim to take advantage of this opportunity. 

Major signals: 

1. Trending RSI

2. 20 and 200 MA cross

3. Higher low, via bounce of our 5 year trend line 

4. Broke 6 Month Bear Market Channel

On the alt-coin front things look promising too. For only the third time since its creation Ethereum broke over its 200 day average, while simultaneously breaking out of its bear channel that it has been trapped in since April.

Being down nearly 90% from its all-time-high, we expect a lot of upside on both Ethereum and the alt-coin sector in the coming month should Ethereum manage to stay above the 200 day average for a few more days.

Long term (2020-2022)

Our Macro position remains steadfast. Our halving report continues to fall in line with our research, with a targeted market top around December 2021, and a target in the $200k region. The narrative we subscribe to the most is that of Digital Gold, as bitcoin can fill the role of a digital store of value amidst global economic calamity. When taking a look at bitcoin’s 11 year macro structure, it is evident that its structure is both intact and also at the ideal buying spot as we bounced off the 5 year trend line and 3 year support in January.

These positions will of course adapt over time, but they are based on taking a deeper look into similar market cycles, asset classes, and macro economics.  

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