Cautious on Crypto Expect BTC to Retest $6K Feb ’18 Lows — Here’s Why
Cautious on crypto space near term, recommend purchasing BTC when it retests $6K Feb ’18 lows. We believe BTC and crypto has been relatively strong in light of a rash of very negative data points weighing on the space. In addition, a Tokyo whale sold significant amounts of Bitcoin from fall of 2017 all the way to the Feb 5th lows. We think we are seeing a flight to quality in the space with Bitcoin outperforming most larger cap coins.
The Tokyo Whale was Nobuaki Kobayashi who is the Mt Gox bankruptcy trustee. From a creditor’s meeting 3/7/2018 update on the Mt Gox estate on the Mt Gox website we estimate that he sold 30–40K Bitcoin for $350–400M USD at an average price just over $10,000 between December 2017 and February 2018. He also sold a much smaller amount of Bitcoin Cash.
The bad news is that Kobayashi still has 166,000 Bitcoin to sell! The creditors meeting minutes doesn’t have too much color, only the below comment from Kobayashi:
I made efforts to sell BTC and BCC at as high a price as possible in light of the market price of BTC and BCC at the timing of sale. I plan to consult with the court and determine further sale of BTC and BCC.
Koyashi’s remaining 166,000 Bitcoins will continue to weigh on the market. Unfortunately, we won’t have any more information until the next creditors meeting Sept 26, 2018. We believe it’s likely the Bitcoin is sold sooner than later because in our opinion a bankruptcy court doesn’t want to take crypto currency risk with creditors funds and Koyashi seemed pretty price insensitive selling the original batch of 35K coins over a 2-month period. Even if he doesn’t sell the remaining coins it will remain an overhang on Bitcoin’s price until we have some clarity on the sale of the coins.
Bigger picture there has been several other negative data points in the crypto space recently that we believe had been driving a flight to quality. We believe concerns over fraud at USD Tether that go back to January 2018 has caused an overhang in alt-coins. Then 1/26/2018 news broke that $530M in coins were stolen in the largest crypto hack ever from a Japanese exchange. Then 3/1/18 we heard that SEC had subpoenaed 80 crypto firms and, in a follow up the SEC put out a statement 3/7/18 that they expected ICOs with tokens that fit the definition of securities and the exchanges that trade them to register with the SEC. We believe ultimately the SEC cracking down is good for the industry but will likely cause more pain near term.
How is crypto doing since the early February 5th bottom? While all the major currencies are up the performance has been quite varied. The top two performers are LTC and BTC with 34% and 31% returns over this period respectively at the time of this writing. BCH posted a 17% return while ETH is the laggard with a 0% return.
The Litecoin Cash (LCC) Fork happened on February 19th, 2018 giving Litecoin (LTC) holders 10 LCC tokens each. Rumors circulating about this hard fork happening drove Litecoin up sharply about a week before this hard fork occurred and we believe this accounts for the majority of LTC outperformance over this time frame.
