A few weeks ago, we noted that too much media attention was “too much of a good thing” for Bitcoin. And indeed, given the heightened scrutiny, we have seen heightened risk of regulatory action. Among the most recent was the CFTC probes around BitMex accounts and also some recent stories around NY residents using Bitfinex. In any case, the cumulative impact of these has been a deterioration of Fundstrat Bitcoin Misery Index (BMI). As a reminder, the BMI is designed to measure the investor sentiment of a holder of Bitcoin (>67 is euphoria and below <27 is misery).
- The BMI began a downtrend which was confirmed on 7/11/19 when this BMI fell below 67 (Slide 3). The most analogous downtrend and break below 66 was last seen in July 7, 2016 (3 years ago). BTC was ~$620 then and saw a subsequent sell-off towards $480 (-25%) within 6-8 weeks.
Crypto winter is over according to Tom, please keep reading.
- FOR THOSE TACTICAL (NOT HODL’ERS), SHORT-TERM BITCOIN RISK/REWARD LESS FAVORABLE: Since 2011, whenever the BMI is in a downtrend and level is around 62 (decile 9, 62-66), the 6M forward return of Bitcoin is a mere 15%—this is not very good (Slide 4). And an investor is better off waiting for the BMI to fall into 50-53 (decile 6) where 6M returns average 231% or even ideally 44-47 (decile 4) where 6M returns are 405%.
Tom makes some very interesting points throughout, again I have placed small samples. Keep reading.
- WHAT COULD GO WRONG? KEEP AN EYE ON THE MACRO. Macro has been a strong support for Bitcoin this year (weaker USD, MMT, tail risks, etc.). Bitcoin volumes and volatility has been reduced, which suggests that markets could move sharply in either direction. Because the Federal Reserve is expected to cut US interest rates, this should weaken the USD, which is a support for Bitcoin. Hence, keep an eye on the macro.
- Bottom line: We believe Crypto winter is over. But the fall in BMI below 66 says “take the next 4-6 weeks off” (as in risk off?). The bigger remains that Bitcoin has more tailwinds than headwinds and the halvening in 2020 is a favorable shift in supply/demand. Given the recent achievement of Level 10 FOMO (3% of price days), past analogs suggest Bitcoin could see new highs within the next 4-6 months.
- I have put several samples of Fundstrat Global research on my this platform, look for more in the future. JMB