The Capital
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The Capital

Money Supply

Lower highs, higher lows

After breaching the 2017 all-time high in mid-December and powering to the recent high of ~$42,000, Bitcoin has entered a period of consolidation exhibited by BTC’s price action printing lower highs and higher lows, all the while remaining above $30K since Jan 2nd, aside from a very brief liquidation induced drop to $27k. Whether this tentative new $30K price floor will hold will be a testament of our hypothesis from last week. That is, that this new, predominantly institutional money that’s driving this price action is indeed long-term ‘sticky’ capital that is absent of the nervous characteristics of retail money which carries a classic tendency to sell out of long positions as volatility moves to the downside.

From a TA perspective, typically trading patterns defined by lower highs and higher lows will eventually conclude in the direction on the previous trend, and in this case with Bitcoin, the previous trend is clearly trending upwards and to the right. However, should Bitcoin trade below $34K and especially close a daily candle below $34K, a lower low will have occurred, invalidating this bullish consolidation. If not supported by dip buying institutions, it is likely that Bitcoin’s price action heads lower to test $30K levels where the next price support is found. Conversely, on the upside, a move above $38K would signify a higher high and likely we see the start of a break upwards again and bids enter the market with $40K the next resistance level Bitcoin needs to breach for a test of the 2021 all-time high of $42K and beyond.

BTC/USD (Bitstamp) 4hr chart. Bitcoin is consolidating with lower highs and higher lows, potential conclusion end of January

News Round Up

Online trader and brokerage platform, eToro warned that it may have to impose limits on purchases of crypto across its platform due to a lack of liquidity from unprecedented buy side demand from its millions of users. Continuing this eye-catchingly bullish headline saw crypto asset manager behemoth Grayscale, reopen its doors last week for new subscribers and was reported to have taken in a staggering $700m of new subscriptions on Jan 15th alone, adding to the impressive $217m of inflow taken by Barry Silbert’s firm on average every week throughout Q4.

In stark contrast to Goldman Sachs’ May 2020 investor presentation, where GS analysts unequivocally stated that Bitcoin was not an asset class, the investment bank is now reported to be lining up to finally enter the crypto market, possibly as a custodian. As Bitcoin trends towards a trillion-dollar asset, last week the OCC granted Anchorage with a national bank charter. It’s no wonder that legacy banks such as GS need to now reconsider their stance on Bitcoin as institutional adoption snowballs to the point where showing shade and ignoring the emergence of crypto is just bad for business. They will and are getting left behind by the likes of Anchorage.

Those of us who have been around for at least 1 cycle of Bitcoin know full well how the ebb and flow of Fear, Uncertainty, and Doubt (FUD) plays out in the market. Be it China bans crypto FUD, Craig Wright FUD and his claim to be Satoshi and desire to crash BTC’s price via selling the Satoshi coins or the Bitfinex / Tether FUD that seems to come around every time prices run up. Social media is currently awash with Tether FUD right now, designed to push newer retail investors into a state of panic and fear. The latest journalistic attack on Tether is from ‘’Crypto Anonymous’’, who’s Medium post has been widely shared across Twitter by prominent Bitcoin skeptics. Whilst there any many valid concerns and questions surrounding Tether and their business affairs, the accusations in this post are somewhat sensationalist. Those that operate in the markets day in and day out understand the current market structure and Tether’s use case for market making and arbitrage strategies across exchanges. It is, however, a theme worth exploring, which we will do so next week.

Money Supply

In a week where President-Elect Biden announced $1.9 trillion in relief to the beleaguered US economy and European Central Bank continued its Pandemic Emergency Purchase Programme (PEPP), it’s abundantly clear that the money supply will continue to increase at alarming levels into 2021. This trend is wonderfully highlighted and widely quoted by proponents of sound money….over 35% of all USD in circulation have been created since the start of 2020, a staggering statistic all hidden by the cherry-picked CPI index that indicates that inflation currently doesn’t really exist. How very convenient.

With this market set up and the wealth destruction of savers taking place, it was not completely unsurprising last week to hear the European Central Bank Head, Christine Lagarde, on a Reuters News conference discuss Bitcoin and parrot long standing narratives about the crypto industry.

“(Bitcoin) is a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity.”

“There has to be regulation. This has to be applied and agreed upon … at a global level because if there is an escape that escape will be use.”

It should be noted that this is a woman who has been convicted of negligence in French courts. As French finance minister in 2008 she approved a rather dubious €404m payment to a French businessman who had been a supporter and associate of her then boss President Nicolas Sarkozy. The courts convicted her but spared her jail and a fine.

These institutions seemingly do not have the best interests of the majority at heart. In the US alone, the major banks have been fined in excess of $200bn since 2000. There has been quite a lot of ‘’funny business’’ taking place including rampant money laundering and market manipulation. The same has happened across Europe with European regulators fining banks over $200bn for a whole host of funny business since 2000.

There is a sense that as Bitcoin approaches a trillion-dollar market cap and pension funds, insurance companies and retails products continue to gain adoption, these old-world institutions and Central Banks such as the IMF and ECB will lose grip on their power and control as decentralized finance and permission-less networks force them to re-evaluate their position in the global financial system.

A recent poll by the IMF. Twitter has spoken

In a final example of the self-serving interests of these institutions, the IMF’s recent statement from Kristalina Georgieva sums up the playbook of centralized decision makers -

“In terms of policies for right now, very unusual for the IMF, starting in March I would go out and I would say, ‘Please spend.’ Spend as much as you can and then spend a little bit more. I continue to advocate for monetary policy accommodation and fiscal policies that protect the economy from collapse at a time when we are on purpose restricting both production and consumption.”

Thankfully, there is some recent positive news for crypto and that is the approval of the new head of the SEC, Gary Gensler. Although not a pure advocate for crypto, Gensler understands the industry well (he taught a Blockchain course at MIT) and is likely to apply appropriate regulation as the markets expand rather than hinder its development with combative policies. His historical comments on the industry provide an insight into a man who realizes Bitcoin and cryptocurrencies have a place in the future world and we welcome an SEC head who can help successfully shape the industry in the coming years.

We would not be surprised to see a BTC ETF approved under his tenor. Watch this space…

Crypto weekly performance: 19th January 2021. Source https://coin360.com/

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Auros

Auros

Auros is a proprietary crypto trading firm. We produce newsletters and thought pieces on all topics related to crypto.