Behind the Bitcoin crash

Author: MacroScope

Compiler: Liam

Some brief notes on the BTC sell-off and what to watch next:

1. I have said that Bitcoin should outperform gold by a wide margin during a gold bull run. But it is important to note that when risk assets are hit like they were last week, Bitcoin's risk factor will drive its performance more than its long-term inflation hedge factor. But its "fast horse" relationship with gold remains unchanged. The price levels I mentioned in my tweet on February 19th remain valid. If BTC trades back up to these levels (basically new highs), then we will usher in a new period of BTC's outperformance relative to gold and other assets. The key word is "if"...this is not a prediction. 2. Understanding the institutional mindset is important. I posted a message on November 10th after the election: "A pullback in Bitcoin's price could trigger a lot of bidding. This has been going on for several months, but I think it will intensify in the future. Many institutions are price sensitive and will choose to wait and see when momentum is strong, but when the price reaches a level they can accept, they will actively participate in bidding." Remember those 13F filings that showed large increases in holdings and new buyers (such as Middle Eastern sovereign wealth funds)? Those filings were as of December 31st, so all of this buying occurred in October, November and December. Bitcoin's decline last week has brought us back to mid-November price levels, and most of the 13F buying occurred during that period. Many price-sensitive buyers are active again. Sovereign wealth funds will not buy large amounts for losses or small gains a few months later. Unless his investment thesis changes, Paul Tudor Jones will not make IBIT the largest stock/ETF position in his entire portfolio (which he did according to the recent 13F filing) just to exit soon after. These buyers live at a certain level and they like to have access to liquidity. We will learn more in the next round of 13F filings.

3. It is important to keep an eye on DC. It is understandable to be frustrated with the slow progress of the BTC reserve strategy, but it is wrong. Remember that Trump's January 23 executive order set a 180-day deadline for the working group to submit a report on the national reserve. This means the end of July at the latest (and possibly before that). In the coming months, traders will begin to look forward to this report.

4. Trump has always defined his presidency by the performance of the stock market. BTC is now clearly part of this self-evaluation as well. If price weakness continues before the working group submits its report, Trump is expected to make a statement in support of BTC, and may even take unilateral actions or announcements. Traders (especially shorts) should understand that this can happen at any time. 5. The Loomis Act proposes large-scale purchases of Bitcoin in the U.S. I have said that if this bill (or a similar initiative) passes, the price of Bitcoin could soar to six figures or even higher. But even if the bill doesn’t pass, does anyone really think that the only countries that have recently started buying Bitcoin are the ones that have to disclose via 13F? 6. Finally, it’s important to remember the sensible position management I mentioned earlier. This is critical for both investors and traders. If anyone is worried during this sell-off, it means they need to re-evaluate their position size. I made the following point after the November 10th election: “It will become even more important to remain conservative to avoid being wiped out in a long-term market that has now changed significantly.” We feel sorry for the leveraged traders and speculators.