Bitcoin (BTC) is very cyclical. Over its ten years as a tradable asset, it has followed a set pattern, which can be easily charted. This is why Magic Poop Cannon, an ill-titled analyst, has recently begun to raise red flags, noting that the ongoing rally might be a “huge fake out”. In a recent TradingView post, Magic laid out his thoughts on the matter, postulating why BTC could fall from here, potentially to new lows.
He explains that strong, correlated increases in the Money Flow Index (MFI) and Network Value to Transaction ratio (NVT) on the weekly chart have always preceded drops in the BTC price. In 2011, when the two indicators reached the peak of their range (like we see now), a 93% correction ensued. In 2013, the two indicators hit overbought/overvalued ranges twice, which were followed by a 75% and 85% decline, respectively. If history is of any indication, Bitcoin may fall dramatically from here.
Magic goes on to say that Bitcoin’s current rally makes no logical sense, pinning the irrationality of this market to institutional investors, futures, trading desks, high-frequency trading, and other factors that have been known to manipulate the underlying nature of markets. Specifically, he looks to the fact that Bitcoin has yet to touch its logarithmic regression line, which the asset has historically traded parallel to before a bull rally. Thus he notes:
I definitely think we will see a severe pullback very soon. Everyone is extremely bullish, filled with greed, irrationally exuberant, and those are all bad signs. Those are the reasons why I don’t trust the notion that the bull market is beginning.
He isn’t the only entity currently bearish. In a recent research note from JP Morgan, obtained by Holger Zschaepitz, a German economist and author, it was explained that Bitcoin is trading above its “intrinsic value”. The note (seen below) suggests that the cryptocurrency’s “intrinsic value” is the estimated cost of production per unit or mining costs. In fact, JP Morgan’s estimates show that BTC is currently (as of May ~15th) trading above its breakeven mining cost by two times.
Zschaepitz adds that JP Morgan notes that this current rally “carries echoes of late-2017”, which was when BTC spectacularly rallied and decoupled from any fundamentals on the back of hype.
The thing is, market dynamics are very different now than 2013, 2015, or even 2017 or 2018, as Magic acknowledges.
As Dan Held, the co-founder of Interchange, recently pointed out, the ecosystem’s fundamentals and infrastructure are much stronger now than in 2017 or 2018, sans mining costs.
Case in point, the industry has some of the biggest names in finance and technology delving in. Square, through its Cash App and chief executive Jack Dorsey; Fidelity Investments; E*Trade, Bakkt, and ErisX are among the developments in the space that make this rally entirely different than anything before it. Thus, some deem it logical that warnings of a large market correction can be deemed moot.
Bitcoin (BTC) is very cyclical. Over its ten years as a tradable asset, it has followed a set pattern, which can […]
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