It has been a wild ride in the crypto markets this year. Bitcoin started a huge run in September of 2020 from $10,000 to $30,000 by year-end. That move carried into 2021. The price more than doubled from just under $30,000 to $64,000, before correcting all the way back to just under $30,000 again in June/July.
The bears came out of the woodwork, calling for a drop to $20,000 or lower. Bitcoin is dead! This is precisely when prices tend to rip higher with sentiment near lows. Bitcoin has run from $29,300 on July 20th to $48,000 this past week, before pulling back to the current price of $44,500. This is a move of around 50% in just a few weeks.
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Leveraged shorts have been liquidated, which contributed to the rapid rise in the BTC price. Several on-chain metrics are pointing to higher prices ahead. Bitcoin’s hash rate is bouncing back after the miner exodus from China. Glassnode pointed out a golden cross between the 30-day and 60-day moving averages of Bitcoin’s hash ribbon. This has historically indicated that price momentum is switching from negative to positive. This coincides with miner accumulation, which is shown in the chart below with miners switching from being net sellers to net buyers over the past 5 to 6 weeks.
There are so many bullish factors for the sector that it is hard to list them all. But another that we track is supply shock ratios. The illiquid supply shock ratio is one that seems particularly relevant. It has been a fairly reliable leading indicator lately. This is simply to say that as more crypto supply comes off exchanges and moves into longer-term storage in hardware wallets, into wallets with a history of holding vs short-term speculating or is staked, this often leads to higher prices. And supply has been becoming less liquid lately. In fact, exchanges are down over 100,000 BTC in the last 30 days, one of the sharpest drops of exchange inventories in Bitcoin’s history.
The dominance of large Bitcoin transactions (> $1M) has risen from 30% in 2020 to over 65% in 2021. This reflects a growing share of institutional interest, and capital being transferring across the Bitcoin network.
One of the most important on-chain metrics for Bitcoin is the Realized Cap, which is the on-chain equivalent to the market cap. It is calculated by valuing each coin at the price when it was last spent, representing an aggregate cost basis for the market.
Uptrends indicate that coins accumulated at cheaper prices are being spent, likely sold, and the market must absorb that sell-side pressure to trend higher.
Downtrends indicate that coins accumulated at higher prices are being sold for a net realized loss and is typical of bearish markets.
The Realized Cap started trending higher in late July and has just reached a new all-time high of $379B. Given spot prices have continued to rally, this indicates that new capital is flowing into Bitcoin, and the market is capable of absorbing that sell-side pressure.
Related to Realized Cap is the MVRV Z-Score that identifies periods where Bitcoin is extremely over or undervalued relative to its ‘fair value’. It compares market value (market cap) to realized value (price when BTC was last moved) to identify periods where market value is moving unusually high above realized value. It is currently at 2.6, with significant upside room to run before getting toward overbought levels around 7.
Other on-chain metrics paint a similarly bullish picture. The S2F model is still indicating the second leg of this bull market is ahead. Of course, none of these metrics are perfect crystal balls, but they help give us some indication and probabilities of the next move in the crypto markets. Recent news flow continues to be overwhelmingly bullish for the crypto sector as well. The latest is that the second-largest US mortgage lender will accept crypto payments this year.
We believe the best strategy is to dollar cost average and continue stacking. We like to add to our BTC and ETH positions each month in regular intervals and then buy additional tranches on any drawdowns of 20% or more. We rarely sell these core positions, but will occasionally re-balance.
We are still targeting Bitcoin at $100,000 or higher by the end of the year, representing more than 100% upside from current levels. But altcoins have been the better performers over the past month and if prior cycles repeat, we could be moving toward another altcoin season. This suggests 3 to 4 months of altcoins outperforming before the pendulum starts to swing the other way.
So, those are some of the key metrics we are following and our current outlook. But how are we doing so far in 2021?
While Bitcoin is up a healthy 54%, the Crypto Corner portfolio is up 279%. Our top performer year-to-date is (reserved for subscribers), up a staggering 3,796%!
Our top pick has seen a surge in volume and attention, as a flurry of new dApps have launched building out their decentralized finance (DeFi) and NFT platforms. It is up 71% in the past week and 191% in the past month! This is impressive, but we think that the ecosystem has plenty of upside still ahead. It is a much better experience than using Ethereum-based DeFi platforms. Not only are the yields higher, but transactions confirm in seconds and cost less than a penny. We believe they have several advantages over Ethereum that combined will continue to draw capital away from Ethereum DeFi and into their own DeFi ecosystem. So, we decided to increase exposure to this ecosystem today.
New Cryptocurrencies Added Today:
Please subscribe to Nicoya Research’s Crypto Corner to get full access to our portfolio, trades alerts, and monthly newsletter. We remain very bullish on our top two crypto picks, so you might consider adding if you don’t have your full desired allocation. These two projects may not be “Ethereum Killers” as everyone likes to say, but they are certainly stealing a significant share of the total value locked (TVL) in DeFi platforms from Ethereum and I don’t expect this trend to stop anytime soon.
“Lemonade stands and crypto are the only free markets left.” – Erik Voorhees
