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Tom Lee and Bitcoin (this piece is a must read)

Tom Lee and Bitcoin (this piece is a must read)

Bitcoin has seen a sharp downturn in recent days, taking it below $8,000 from $14,000, a 40% pullback.

As our clients know, since late July, a variety of factors (see below) have argued to us Bitcoin is more of a “waiting game” rather than expecting a full on upside breakout.  The two most important factors:

First, Bitcoin Misery Index (BMI) peaked early in 2019 and then fell below 66 in late July, and was a sign that holders of Bitcoin had become too confident of the upside.  Hence, we have been waiting for this BMI to fall in the 40-53 range to signal a better risk reward.  Generally, the BMI is like the PMIs (which measures business confidence) and a reading at 50 is balance sentiment.

Second, our work has also shown that “trendless macro” environments are bad for Bitcoin.  Hence, the rangebound S&P 500 and the lack of an upside breakout for S&P 500 is a headwind for Bitcoin.  The primary explanation for this, in my opinion, is that Bitcoin is still largely held by retail investors.  And these retail investors are not using Bitcoin as a hedge, but rather, as a way to add upside volatility (its risk-on).

Thus, we are waiting for two things — (i) a BMI reading and trend change and (ii) an S&P 500 upside breakout.
The technicals for Bitcoin are probably not screaming “buy” but we do not think this is necessarily a change in trend.  We believe crypto winter is over.  But new headwinds emerged in 2019.  In particular, opposition to Bitcoin by the White House and the ground swell of anti-Libra by governments.

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Disclaimer: We do not provide investment advice or strategies, this article is not intended as such but only to provide you the reader with information. Please conduct your own research before any investment of any kind.

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