Juan Villaverde is an econometrician and mathematician devoted to the analysis of cryptocurrencies since 2012. He leads the Weiss Ratings team of analysts and computer programmers who created Weiss cryptocurrency ratings.
Dr. Bruce Ng is an educator in the field of Distributed Ledger Technology (DLT) and has been a lead crypto-tech analyst for Weiss Cryptocurrency Ratings since shortly after their launch.
____
Bitcoin (BTC) stood at USD 29,000 on Jan. 1. Even if it only goes up only half as much as in 2017, it’s still going to top USD 325,000! Either way, it’s shaping up to be déjà-vu all over again …
Although bitcoin’s fevered advance seems to have temporarily stalled just shy of USD 40,000, its epic rally over the last three months has taken out one resistance level after another.
For example, it was only mid-December when Bitcoin finally broke above major overhead resistance coinciding with its 2017 high (near USD 20,000).
After that, it shot up more than 100% in just three weeks, climbing as high as USD 41,000 (and change) on an intra-day basis.
Along the way, bitcoin also made more money for investors in 2020 than any other major asset class. It outperformed US stocks and long-term government bonds, roughly 16-to-1.
Bitcoin outpaced gold by 12-to-1 last year, and US Treasuries, by a remarkable 99-to-1.
A performance like this commands attention. This is why we’re starting to see sentiment in favor of crypto pretty much across the board.
Tech companies, hedge funds, and other big investors who once eschewed all things crypto are now tip-toeing gingerly in. For example …
Asked why he was scooping up bitcoin for his hedge fund, billionaire investor Paul Tudor Jones said Bitcoin was the "fastest horse" in the race to beat inflation — ignited by flagrant money-printing.
The Grayscale Bitcoin Trust recently took advantage of bitcoin’s pullback to scoop up BTC 10,000, boosting total assets under management above USD 22bn.
Business intelligence firm MicroStrategy recently invested over USD 400 million in BTC. And then Morgan Stanley purchased 9% of MicroStrategy — precisely to boost its exposure (albeit indirectly) to bitcoin.
Wyoming just awarded US crypto exchange Kraken a license to create a crypto bank. Tentatively named Kraken Financial, it will operate blockchain payment systems and issue crypto debit cards. Customers will be soon able to open crypto savings accounts, as well as pay bills and receive salaries in crypto.
Wyoming also awarded Avanti Financial Group a charter to open a second crypto bank. And not to be outdone, the US Comptroller of the Currency has given the Anchorage Digital Bank National Association the green light to establish and operate America’s first federally chartered digital bank.
New York Stock Exchange (NYSE) sister company Bakkt Holdings, which runs a Bitcoin futures market, just got clearance to go public in a deal worth an estimated USD 2.1bn. And few companies are more symbolic of middle-of-the-road investing than the NYSE.
So, you see, not only is sentiment shifting broadly in favor of crypto, it’s positively going mainstream. This is massively bullish for bitcoin.
But in case you still think lightning can’t strike twice … that another 2017-like season cannot possibly lie ahead for bitcoin in 2021 … consider this: By their very nature, certain crypto assets have …
An intrinsic affinity for parabolic breakouts
The reason is simple. In virtually every conventional financial asset class, sharply rising prices lead to expanding supplies — which then act to dampen further price gains.
When stock prices rise sharply, for example, investment bankers bring to market a flood of new listings.
When gold prices shoot up, miners take advantage of them to develop lower-grade deposits that were previously uneconomic to produce.
When property prices go through the roof, real estate developers sometimes even expand into flood plains, or drain swamps in order to obtain more square footage to sell.
Bitcoin simply doesn’t work that way. That’s because it has a hard ceiling on how many coins can ever be produced (21 million) — no matter what happens to prices.
So, what happens when surging demand for crypto — like we’re starting to see now — collides with inelastic supply?
Prices have nowhere to go but up. That’s just Economics 101.
This is why crypto markets routinely go into exponential parabolic uptrends … only to crash back down, recover and then shoot for the stars again.
On top of that, every time a crypto bubble pops, valuations never actually come back down to where they were before.
That’s because each successive bubble brings in new people, many of which never leave.
In fact, this is how the crypto universe grows: By sucking new people in during bull runs. Then, by consolidating and expanding infrastructure during the bear markets that inevitably ensue.
And all this, of course, merely lays the groundwork for the next parabolic upsurge. When even more folks jump into the bandwagon.
How long will these dynamics play out? Hard to say for sure. But even this bull market likely still has close to another year or so to run.