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Crypto comment: Bitcoin is going to make it back to $100,000

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Bitcoin was continuing to consolidate at around the $20,000 level this week while fear of recession continues. That now seems very likely indeed for the US, and many market pundits are now pondering the likelihood of a depression if central banks continue to raise rates. Concerns around the impacts of persistent inflation were exacerbated Wednesday, as the Federal Reserve Chairman Jerome Powell testified before the Senate Banking committee.

Senator Elizabeth Warren asked Powell if he expects interest rate hikes to bring down gas and grocery prices. Powell replied “I wouldn’t think so, no.”

If interest rate hikes are unable to bring down inflation, then it is likely that the American economy will be forced into a recession. Goldman Sachs’ economists now see an increased risk of a US recession. They explained, “we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply.”

All this is weighing down on cryptocurrency prices. The fall in the price of ETH and BTC has taken a lot of froth out of the market, but it has left the playing field wide open for institutional players. It feels as if the amateurs have all gone home for their upper, leaving the professionals to continue playing in the second half.

Expert further short term selling of BTC

The BTC price looks like it will continue to drop further on uncertainty around the economic picture and further sabre rattling between Lithuania and Russia over the Russian Baltic enclave of Kaliningrad. According to Manu Choudhary, CEO of Definity, spreads within key crypto markets are widening due to the volatility in the markets. He anticipates a drop in BTC to $14,000 in the near term, but remains confident that Bitcoin will return to the $100,000 level. This makes it a potential x5 trade from current levels.

For starters, many fund managers Choudhary has spoken to are moving some of their gold allocation into the main crypto markets. This represents a significant  sea change for asset allocators. “There’s still not enough clarity about the future interest environment, and no light at the end of the tunnel from Jerome Powell either,” he told us. “As debt has expanded in the US economy, as the leverage quantum has increased, so we can’t realistically go too far above 1.25% [base rates].”

With the next Fed meeting six weeks away, expect the crypto markets to remain fairly rangebound over the near term. The negative sentiment is going to weigh on Bitcoin. But Definity has been talking to many banks that are still in the process of  building new links into the cryptoverse, and Choudhary sees no sign of those plans being shelved.

In other words, the mainstream banking custody businesses remain committed. Institutional clients are on board with crypto and demanding better and more secure access to the market. He says he knows of at least two major UK clearing banks that are currently advancing plans for bigger participation in cryptocurrency markets.

To paraphrase Mark Twain / Samuel Clemens, “the reports of crypto’s death are greatly exaggerated.” Choudhary says he reckons that the crypto rally will likely not occur before September, as we are almost into July and a quieter period for markets. He feels central banks, including the Fed, have their hands tied when it comes to raising rates, and that 11% base rates are not credible in this environment, as it would mean a depression for western economies.

Crypto miners are ‘adjusting’ their HODL strategies

One group of people who have a significant influence on BTC price is miners. A major Bitcoin mining farm in Canada, Bitfarms, is now “adjusting its HODL strategy” according to the press release, to raise more cash and strengthen its balance sheet. Reportedly, the company has sold 3,000 BTC for approximately $62 million at an average price of $20,600. This selling is partly because Bitfarms have a BTC-backed credit facility with Galaxy Digital LLC, and with this raised cash they will reduce their debt with Galaxy Digital from $66 million to $38 million.

The main reason behind selling their Bitcoin though was due to profitability decreasing with increasing electricity prices, so they are forced to liquidate some of their Bitcoin to cover operating costs. From now on, the company will no longer HODL its assets produced daily, which means that Bitfarms will most likely create constant selling pressure on the market.

Glassnode data shows that other miners, not just Bitfarms, have generally been selling recently. Miners’ balances have stagnated from the 2019-21 accumulation uptrend and reversed into decline. Miners’ have spent around 9k $BTC from their treasuries last week, down from around 60k $BTC.

“When looking at patterns from previous bull/bear markets, this type of behaviour from miners is not surprising,” observed Marcus Sotiriou, analyst with GlobalBlock. “In November 2018, towards the low of the previous bear market, miners capitulated on the leg down to $3,000. It’s typical for miners to be accumulating during bull markets and selling in bear markets, as they need to cover interest payments due to being too highly levered, or they need to pay for power costs.”

Whales and shrimps are both getting fried at the moment

Both whales (generally institutions) and shrimps (generally retail) are facing losses to some degree. Glassnode shows us that all wallet cohorts now hold massive unrealized losses, worse than March 2020. It is clear that the least profitable wallet cohort hold 1-100 $BTC. This data demonstrates that there is not a wallet cohort category which is benefiting from this market downturn.

GlobalBlock has further evidence of institutions being vulnerable during this downturn as Canada’s Purpose ETF, which is the world’s first actively managed crypto ETF, sold 50% of its Bitcoin holdings overnight. The firm sold 24,500 Bitcoin on June 18, 2022, as the price plummeted to a low of $17,600 the same day.

“This is a result of crypto lenders being over-generous and borrowers taking on too much debt and therefore risk, and has led to the recent forced selling of BTC and ETH,” said Sotiriou.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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