Investment Idea

Now you could start buying Bitcoin and Ether again?

Mikael Syding
22/06/2022 | 4 min read

On January 18, I warned about a halving of the largest cryptocurrencies BTC and ETH. I believed in a risk-off phase for risky assets with technology stocks and cryptocurrencies at the forefront. I found my goal levels with graph voodoo: "Some of the main features I stick to are, as I said, the old peaks from 2017-2018"

Now you could start buying Bitcoin and Ether again
On January 18, I warned about a halving of the largest cryptocurrencies BTC and ETH. I believed in a risk-off phase for risky assets with technology stocks and cryptocurrencies at the forefront. I found my goal levels with graph voodoo: "Some of the main features I stick to are, as I said, the old peaks from 2017-2018".

In December 2017, BTC traded significant volumes of $ 15-17k per coin, and ETH in January-February 2018 at rates around $ 1k. Now we are already pretty much there just five months after the last crypto article. Last night, BTC fell to just under 21,000 USD while ETH touched 1075 dollars. It could be low enough to start accumulating the cryptocurrencies, I think – for example, by about 10% of a monthly investment amount. This is done to avoid buying the entire holding at a price that turns out to be far above the absolute bottom. During such an accumulation phase, one could also buy little more than 10% when prices have just fallen and little less when prices have just risen significantly. Otherwise, one could stick to the basic plan's 10% per month.

No one has a solid foundation to say what a cryptocurrency should be worth, except possibly Eric Wall with his magical rainbow graph. The rest of us have to content ourselves with doing relative analyzes, i.e. relating the prices in BTC and ETH to their own historical prices and movements, and to the magnitude in value relative to other asset classes and the growth of the system itself (in terms of number of followers, number of transactions and the like). When I sort among the variables and unicorns, I get a hint for potentially new record prices in just a few years, in fact for double the old peaks. That would point to $ 140k / BTC and $ 10k / ETH. Then the market value of Bitcoin would be about $ 3T and for Ether $ 1.2T (with room for some variation in the number of ETH in circulation). It is also far from the final levels required for cryptocurrencies to be anything other than an esoteric niche product. Even gold has a market value of $ 10T, which could also multiply during this inflation decade. The end station might be something like this: US GDP $ 35T, US stock market $ 50T, gold $ 50T, Bitcoin $ 25T and ETH $ 25T, to find some kind of symmetry between different economic variables.

I remember when in 2013 I wished that Bitcoin would come down a bit from the daily price of $ 238 so that I would find it worth buying some. Today, the price is multiple times so high. From that perspective, it might seem a bit silly to try to find a starting price of $ 15k, $ 17k or $ 22k for Bitcoin, and 900-something or 1100-something for Ether. On the other hand, it is currently burning in the cryptosphere, after the Celsius crash this weekend (the company stopped withdrawing from its crypto investment product after the mortgaged structure fell below the margin call limit last night – they have followed the motto "when in trouble, double" and risk thus further losses) and Coinbase dismissal of 18% of the number of employees today.

I think the cryptocurrency chaos may be close to its local climax with these events, and have therefore covered my shortfall in Coinbase on the hedge fund I manage. During previous long-term downturn markets, I have learned to buy back shortfalls when the holdings feel best and the bankruptcies seem to be around the corner, as well as sell on new shortfalls and their best long holdings when you finally think the stock market has turned upside down.

To clarify, I think we could be close to a local bottom for risky assets. The triggering factor may well be the Fed's increase by 75 points today (Wednesday 15 June). It fits perfectly into the cross-sectional analysis I have had to get used to during my 28 years in the financial industry. A real rally for both crypto, technology stocks and the stock market for the rest of June and a bit into July could be exactly what gets many investors off balance. Thus, the largest number can look like beginners when everything collapses again to new annual lows maybe towards the end of the third quarter. Note that I always balance a market-neutral equity portfolio and thus do not take big bets on rising or falling markets. No, I will instead try to make money on the difference between the development of my owned holdings and my blank holdings. However, the choice of type of holding can still reflect my stock market view - and there I still have a lot of technology companies on the sales side and more defensive choices on the long side.

Privately, I am eager to start building a crypto portfolio of ETH and BTC at today's levels, but I may wait until this autumn, because the macro situation looks dark in the next twelve months. High inflation, rising interest rates, tied-up central banks, deglobalisation and growing geopolitical tensions all contribute to an increased risk of recession. We have all this in front of us. In fact, Q2 performance reports are probably quite strong and it is only after that that the underlying weakness is manifested. That's why I'm on the margins more positively now. Note, however, that when it comes to technology stocks and cryptocurrencies, a bear market rally can easily raise prices by 50% in a few weeks, so it is definitely worth catching it if you think you are lucky.

@Mikael Syding

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