Bitcoin whales bought the dip.
Trading volume picked up the further Bitcoin dipped and closer it got to $30,000. The recent correction was a wakeup call to newcomers in the cryptocurrency space. 1) It revealed the potential volatility in store for the remainder of the current market cycle and 2) It showed the type of conviction that whales have. Large buyers bought all the way down toward $30,000. The number floating around is 122,588 BTC—that’s the amount of Bitcoin that whales accumulated during the recent pullback.
Weak hands tend to transfer coins to strong hands (long term holders) in periods of extreme volatility. We often see newer entrants ceed to these longtime whale buyers. May trading action showed just that. Even though BTC tested $30,000, it very quickly recovered to price levels we’re currently watching around $40,000. If it breaks above $44,000, we could see another push to $50,000.
In a way, a lot has happened in the last week. In another way, we’re right where we were one week ago—fighting for $40,000 and closely watching levels around $38,000 on the downward side and $44,000 on the way up.
June could be just as wild as May.
June 2021 is primed to be just as volatile as May. That said, Bitcoin remains within range of PlanB’s stock-to-flow models and certain on-chain analysts like Willy Woo are still calling for a price between $200,000-400,000 within the next year. It’s still too early to say whether or not we’re in a Bitcoin Supercycle. If we are, we could see some parabolic moves upward come August. Dan Morehead’s call for $115,000 between August-February is also still in play.
Double Top Scenario
Comparisons to the 2013 bull market are being thrown around. Speaking of Morehead, his CIO at Pantera Capital is one of those pointing to similarities between mid-cycle 2013 and now. In 2013, Bitcoin went through what’s called a double top. It hit just above $250 in April before trading sideways for about five months. Then, it started to show signs of life and rocketed up another 4x, breaking past $1,000 by early December. It recorded a its second top above $1,200.
If a double top scenario comes into play, we may again be in Bitcoin Supercycle territory. We could also see a strong correction following a second top into what would become the bear market. We’re mid-market cycle. There’s still a lot of room to run and this time is showing similarities to 2013, but it’s also very different. Bitcoin has far more attention on it than in past cycles. There’s bigger names and companies in the mix. We have a larger overall crypto market. Ethereum, the second largest cryptocurrency, has fluctuated between a $300 and $400 million market cap.
The ecosystem is evolving. Bitcoin remains its usual self, but it has a lot more orbiting it this time. We’re even gearing up for Bitcoin 2021 in Miami the first week of June. Speakers like cypherpunk Nick Szabo, Senator Cynthia Lummis, and Jack Dorsey will be sprinkled amongst the likes of Tim Draper, Lyn Alden, and Max Keiser. It’s a brave new world for Bitcoin and cryptocurrency in 2021. I’ve made comparisons to 2017 when looking at recent volatility. 2013 is looking to be a better overall counterpart. In general, however, Bitcoin is still a nascent asset. We could see new patterns emerge, especially as crypto goes more mainstream than ever before.
The mining landscape is changing.
Rightly or wrongly, Elon Musk has forced the hand of Bitcoin miners. Longtime mining companies are coming out to defend their practices around energy usage and consumption. The largest mining company in North America, Core Scientific, was quick to respond to recent energy FUD (fear, uncertainty, doubt), reiterating that they are already 100% net carbon-neutral.
I said previously that the silver lining around these common misconceptions around Bitcoin being brought up by newcomers to the crypto space is that it requires industry insiders to step up to the plate and address the topics. That appears to be exactly what Michael Saylor and several Bitcoin mining companies are doing in regards to mining and questions around energy consumption.
Saylor even arranged a meeting between Musk and a handful of North American miners to create what’s being dubbed—The Bitcoin Mining Council. They will strive for greater transparency around mining energy usage and aim to improve Bitcoin mining’s sustainability efforts. Saylor has been one to frame Bitcoin as a store of energy—an asset created by energy that cannot be destroyed and can instead be transferred globally and across generations.
There’s a lot to rethinking the way we view Bitcoin, which the media and critics of Bitcoin are often hesitant to do. Critiquing Bitcoin strictly for its energy usage is a value judgement on how energy should be used in the first place and it’s a statement that Bitcoin isn’t worth the effort. Saylor has been a reasonable voice in a sea of debates in recents months, playing moderator in conversations around gold versus Bitcoin or energy usage and how public companies should approach Bitcoin.
“We need to make sure that people that are hostile to bitcoin and hostile to the crypto industry aren’t defining these narratives and defining those models and defining those metrics.”—Michael Saylor
While skeptics of the “mining council” effort see it as an unnecessary semi-centralized approach toward a decentralized network, it’s an example of the give and take required to bring an asset like Bitcoin mainstream. It may not be perfect, but we can rest assured that a group of anyone, miners included, can’t do anything to stop Bitcoin. If anything, they’re further incentivized to do what’s best for Bitcoin to succeed.
China, Bitcoin, and crackdowns.
Bitcoin mining in China has been a hot topic as of late. Many have thought that headlines calling for more crackdowns from the PRC on Bitcoin miners added to recent volatility. It didn’t help stabilize anything—that’s for sure. We do know, however, that such news out of China is nothing new. I addressed the complex relationship that China has with Bitcoin and crypto in my last paid email. Upgrade to read it here or revisit it if you’re a paid subscriber.
“China operates in a way where they rarely change the rules. Changing the rules can be very controversial. What they do is they change enforcement. That’s why these verbal announcements are just a signal to the market, that they’re going to step up the enforcement again.”—Bobby Lee
I loved seeing Bobby Lee speak out on the recent China news. I did a deep-dive into the history of crypto in China and the role Lee played in the rise of Bitcoin there. He’s worked for several different companies in China and co-founded BTC China (BTCC), the country’s first ever cryptocurrency exchange.
China, like most governments, wants to keep Bitcoin within its reach. The United States is no different. We continue to see calls for greater transparency around crypto taxes in the U.S. as well as increased know-your-customer and compliance regulations for U.S.-based exchanges. If anyone understands the value of Bitcoin though, it’s China. There is no outright ban. As Lee says, it’s increased enforcement around the same rhetoric the PRC has always had about Bitcoin.
In fact, too much enforcement could force some Bitcoin mining companies abroad and actually lessen the influence that Chinese miners have over the network. How China reacts toward mining in the coming months will be key for the competitive global landscape. Seeing developments in North America likely has the PRC constantly weighing its cost/benefit approach toward enforcement.
What I’ll cover in June.
Crypto bull runs are an excuse to revisit how you store and secure your holdings. I’ve been doing just that. I want to cover how I’m holding and securing my BTC, ETH, and other crypto. I’ll do a deep-dive for paid subscribers on how to use both a hot wallet (online, but not on a crypto exchange) and a cold storage hardware wallet. Both are useful for different reasons. Here’s a quick look at what I’ll cover.
Why use a hot or cold wallet
Setting up a hot wallet
Setting up a hardware wallet
Reseting both from scratch
How to use both securely
Become a paid subscriber so you don’t miss out on the in-depth look. On top of that, I’ll be watching how Bitcoin reacts to current price levels and provide more in-depth analysis on the rest of the crypto market.
I’m also closely monitoring Ethereum in the coming weeks. EIP1559 and other ETH 2.0 upgrades are right around the corner. That means miners like myself will likely see reduced profitability mining Ethereum. The changes will play a major role in the price of ETH in 2021. As always, thanks for subscribing and consider upgrading to the paid email to enjoy everything moving forward!