Markets have stabilised since around the 20 January, but we cannot be certain this represents the bottom.
Given the unprecedented combination of events that impacted Bitcoin in 2021, it is perhaps not surprising that the market currently feels like it’s in uncharted territory. Patterns of trading behaviour have changed, new investors and trading instruments are influencing the price, and the old cycles seem to no longer apply.
The rally into the back end of 2021 was expected to be sustained: institutional adoption ramped up. Yet, despite the influx of capital, whales holding, and even miners keeping hold of their bitcoin, the price has seen a 50% correction since the all time high in early November..
However, shorting Bitcoin from this position would be a bold trade. Coins that have been held for a significant period are still not selling and the volatility appears to be generated by relatively newly mined coins. Further, positive regulatory clarity could kickstart a rush of institutional capital.
Top level summary for 30th Jan 2022 (current price $37.6k):
● Short Term: The sell down by traders which lead to holders to follow suit has now stopped. Traders on futures exchanges have recently stopped selling while on-chain analysis suggests holders are now buying alongside medium term speculative investors.
● Price is now at discounted levels compared to on-chain demand.
● Whales (owners of 1000BTC or more) are now in strong accumulation, signs that institutional money is now re-entering the market.
At the moment The Federal Reserve is reviewing the monetary stimulus policies used in response to the pandemic.
The Monetary Stimulus is what drove the unprecedented rise in most risk-on assets, including Bitcoin, hence the correlation between Bitcoin and Equities. Fear has set in, and by March we could see the first Interest Rate hikes in over two years.
Looking at The Stock Market, we can see that the drop in Bitcoin price is not an isolated case, in fact the stocks that saw the most growth are also being hit hard - suggesting global macro factors are affecting prices.
Today, Crypto is no longer a Retail driven market. Back at the end of the last major bull run at the end of 2017, there were approximately $5 Billion in Crypto Funds Assets Under Management. Today that figure stands at around $60 Billion. This is driven by Sovereign Wealth Funds, Pension Funds and Hedge Funds entering the space and have been accumulating Crypto.
Examples of these are: BlackRock, Morgan Stanley, BNY Melon, State Street, JP Morgan, Soros Fund Management and The Endowment Funds of Harvard and Yale.
Last year Fidelity found that 52% of Institutional Investors held Cryptocurrency of one form or another.