BITO And Bitcoin: History Doesn’t Repeat Itself, But It Rhymes

Thesis Abstract

The thesis for that is easy – practically every part factors at this being a serious capitulation occasion, the primary we have actually seen since 2018 when Bitcoin (BTC-USD) fell over 30% in only a matter of two weeks.

One may argue there was one other such occasion in 2020, in the course of the liquidity disaster, nevertheless this was a broad-market occasion that affected extra than simply cryptocurrencies, and thus I’d argue it was not fairly the identical sort of capitulation.

Throughout these capitulation occasions all these similar headlines and perma-bears come out of the woodwork – swearing Bitcoin goes right down to <$3,000 and even going to $1 or $0 because it’s essentially value nothing of their thoughts. The identical query of the legitimacy and safety of cryptocurrencies and Bitcoin is introduced up – regardless of the on-chain safety not being affected in any respect, and the truth that that is all simply value motion, not a safety risk or vulnerability.

With Bitcoin buying and selling at 2-year lows, again to the worth it was simply because the inflation narrative took off in 2020, the pot odds down listed below are unbelievable – practically nothing has to go proper for cryptocurrency to return up.

It is my perception that one of the simplest ways to play that is to go lengthy through ProShares Bitcoin Technique ETF (NYSEARCA:BITO) because of the lack of change danger mixed with choices availability, as it’s not spot Bitcoin however moderately a futures spinoff that doesn’t have custodianship danger.

Similarities Are In every single place

For people who have not been via these occasions earlier than they are often nerve-racking, particularly in the event you’re closely invested in cryptocurrencies as every part is put into query throughout these occasions. The very cloth of the house typically appears to be crumbling, with exchanges collapsing or at-risk of collapsing, consumer funds doubtlessly being unsafe or stolen, authorities laws or bans being rumored, and many others.

Going again in time to the November 2018 crash, which was the ultimate capitulation of the 2017-2020 bear market the place the true backside in sentiment, curiosity, and weekly value was made, there are various similarities to right this moment.

It is virtually unusual what number of similarities there are, with each of those occasions occurring proper across the similar time the U.S. midterm elections occurred – each occasions in November.

One other similarity is the volatility; each intervals had the previous couple of months crammed with seemingly disinterest, nothing occurring, and intensely low volatility relative to the previous.

However the similarities hardly cease there, with Google tendencies charts exhibiting practically an equivalent image in the course of the time interval as effectively, with a gradual fall in search curiosity within the previous few months earlier than the collapse in costs.

Searches on Google pertaining to “Bitcoin” globally fell from round 75~ in mid-August 2018 to round 45~ proper as the underside dropped out of the market and the crash started. This represented round a 40% drop in relative searches globally over the interval of 90 days previous the crash.

Likewise in 2022 the Google pattern information for the search time period “Bitcoin” fell globally from round 85 right down to 55, representing a 38% decline in relative search curiosity globally within the final 90 days previous this decline.

I can proceed with chart after chart, similarity after similarity, however the actuality is the state of affairs in 2018 was very completely different than right this moment – there was no liquidity crises amongst the most important crypto exchanges. There was no actual danger of cascading collapse of different platforms/exchanges both.

Historical past Does not Repeat Itself However It Rhymes

The state of affairs right this moment is completely different than in 2018, the macro setting has developed, the dangers plaguing markets have modified, and lots has modified – but there are various similarities between this capitulation occasion and the 2018 capitulation occasion.

I would counsel this capitulation occasion is NOT attributable to SBF and the potential collapse of FTX (FTT-USD) however moderately that is simply the explanation we have collectively determined to panic.

No one has been concerned with crypto for months, curiosity has continued declining to virtually nothing – down practically 40% within the final 3 months alone. Volatility has contracted as no person dares to guess on the upside, nor the draw back as Bitcoin sat in a zone most people thought was cheap, however unsure – with no catalyst to maneuver it up or down.

Folks largely did not bounce in and go lengthy as with inflation seemingly not increasing, hawkish financial coverage, and a possible financial disaster on the horizon there was numerous uncertainty, however with Bitcoin down a lot why would you promote after already consuming nearly all of the loss?

That is what folks thought – till they woke as much as see that Bitcoin and Ethereum (ETH-USD) that has been largely steady for a lot of months now, in an “accumulation zone” drop 25% -> 30% in a matter of days with completely no certainty of a backside being set – all facades of stability gone.

They woke as much as this actuality after checking their portfolio, or seeing headlines just like the one above, with a style of blood of their mouth, feeling queasy that they simply misplaced one other 1/4th of their funding.

What if Bitcoin does go to $3,000? What if this silly web cash has no worth? What if the U.S. bans and regulates every part to oblivion over this? What if FTX has been propping up the worth of Bitcoin? Oh god what about Tether (USDT-USD), is that this the time they get regulated and confirmed to be a Ponzi?

Chilly chills rush over them, they log in, they usually puke it – promoting at any value they’ll because the dread units in that they may lose every part – because the doubt units in that the bears are proper.

This shifted everybody’s mindset from “a backside is in, we’re accumulating into the subsequent rally” to “why do I personal this rubbish?” as they awakened from their complacency. SBF and FTX may very well be bailed out and this awakening is not going to go away, it was merely the excuse, the occasion, that made everybody collectively panic.

Neck-Deep In Terror

At this second Bitcoin is round $1000 off its in a single day lows, up at round $16,500~ and I can not discover a single soul who’s keen to purchase. Not one.

With the sturdy purchase score you might suppose I’ll say it is solely up and away from right here – and everyone seems to be wrongly afraid. Sadly, I can not say that – every part is simply getting worse and worse.

Beforehand this was all wanting prefer it was going to be swept beneath the rug and Binance (BNB-USD) was going to soak up FTX and resolve this – however with them backing away from any dealings or affiliation with FTX this risk is gone.

There is no such thing as a rescue. There is no such thing as a bailout. There is no such thing as a assist.

At the moment there is no such thing as a actual substantive information on how problematic this case is, how a lot of buyer funds are gone, lacking, or misplaced, or the present steadiness sheet of FTX.

The Deafening Silence Returns

To make issues worse, till this morning, FTX and SBF had gone radio-silent since November eighth, one thing that has solely been carried out by corporations which can be on their very own, heading straight for Chapter 11 bankruptcy and investigations.

The eerie similarity to Celsius Community (CEL-USD) and different crypto-lending platforms, who additionally selected this route, is placing to me – and screams the doubtless end result of this case is not going to solely not be tender, however will probably be far far worse than persons are anticipating.

There is no such thing as a rescue. There is no such thing as a bailout. There is no such thing as a assist.

Takeaway

God assist us all – the underside has fallen out and I do not see the bottom beneath my ft – all I hear is screaming.

That is precisely the way it sounded and felt within the November 2018 crash and the 2020 COVID-19 crash, so I stay lengthy, reluctantly including at these ranges with a sense of illness in my chest as I’m compelled to boost money and delever from different investments to assist my cryptocurrency portfolio.

The underside must be in, or near it – and in time us bulls will doubtless be known as fortunate backside fishers when the crypto market returns to regular or begins rallying from these lows within the close to future.

Actionable Takeaways

I like to supply actionable takeaways, commerce concepts for folks in my articles, however I can’t actually present one on this case – each commerce can be primarily based on hypothesis and opinion and with excessive danger.

With one exception.

If you wish to go lengthy the asset class (or I suppose brief), take into account shopping for medium-long dated spreads, an instance being shopping for the January 20, 2023 7 places and promoting the 12 places in the identical expiration – netting a breakeven at mid-price (market) with a capped upside of $253 and a capped draw back of $247.

This is able to restrict draw back danger in both course relying on in the event you did the above (going lengthy BITO/Bitcoin) or the alternative of it (going brief BITO/Bitcoin) and supply a approach for an investor to achieve publicity with out taking up the acute dangers really holding the asset carry at present.

Dangers To Contemplate

If you have not taken the trace, bulls like myself are on the verge of being skinned alive by the market. In mere days, if the true impression of this ordeal is confirmed to be catastrophic, we may all be becoming a member of the screaming with everybody else – falling shortly into the abyss with no sight of the underside.

Those that would not have a danger tolerance able to withstanding a complete lack of capital ought to doubtless keep away from all cryptocurrency merchandise till this complete state of affairs has performed out.