Some Bitcoin Thoughts

Louis Sykes
May 16, 2022

From the desk of Louis Sykes @haumicharts

It's been almost a joke at this point to cover Bitcoin from an analytical perspective when it's been nothing but representative of the Nasdaq, US growth stocks, and long-duration assets in recent months.

People often ask what it'll take for correlation to macro to die out.

Here's a take.

Bitcoin has its whole separate supply dynamics taking place on-chain away from macro.

The reality of the situation is that there's a small group of highly sophisticated traders utilizing perps and the traditional calendar futures market in great size bounding price action to the US indices. But under the surface, there's a new group of investors and a cohort of preexisting ones that are laying down support.

Zhu Su of 3AC likens it to a supply "gentrification" to convicted crypto natives, institutional buyers, and HNW individuals, that when complete will see a significant dislocation between equity markets and Bitcoin. The price action of the last week is an extreme example of this transfer.

Another take I like is from BitMEX's Arthur Hayes:

Let me repeat– the crypto capital markets are the only free markets left globally. As such, they will lead equities lower as we head into the downturn, and lead equities higher as we work our way out of it. Bitcoin and Ether will bottom well before the Fed acts and U-turns its policy from tight to loose.

It certainly wouldn't be the first time to happen. In previous tops and bottoms over the last few years, crypto's been front-running equities the entire way.

There's been a notable juxtaposition between weak equity markets and strong spot buying. The case for us has been to play defense if Bitcoin remains correlated to weak equities, which continues to serve us well.

But correlations are bound to change.

I'm going to stick my neck out and say Bitcoin will dislocate from equity markets in a powerful rally sometime in the next few months.

As far from a sentiment perspective, it's nearing the local maxima.

It's not often we see realized losses spike as they have done. Hypothetically speaking, these periods are when supply is being transferred from weak heads to strong ones, particularly in US retail.

Further, there's been much discussion about the Luna collapse, and rightfully so.

But a narrative I don't see getting much attention is the fact that $1.5B worth of BTC had to be dumped on the open market going into the lows, not to mention the influx of selling pressure from traders front-running the dump. Yet, Bitcoin still finds itself above 30,000.

One of the most important bullish narratives of the year (Luna buying BTC) not only eroded but swung in the complete opposite direction.

But Bitcoin is still resilient.

It's hard not to ask the question, "was that it?"

- @haumicharts

 

 

 

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