Analysis: Bitcoin Bottom Is In As Those Who Needed To Sell Did It On March 12
At the time of this writing, Bitcoin is trading at $7,230 with $32.46B volume and a $132.56B market cap after trading below $7,000.00 for most of the past week. Those who have been “long the dip” when it hit the $4,000’s market have already almost doubled their money.
The question remains to be seen as to what the weeks that lie ahead predict for the price of Bitcoin and whether or not the bottom is already in.
Has Bitcoin Already Bottomed?
With the impacts that COVID-19 had initially, Bitcoin seemed to bear a correlation with the broader equity markets. Many posited that institutional investors who held Bitcoin felt the impact of having their stocks drop dramatically and wanted to convert some of their Bitcoin into cash to rebalance their portfolios.
The Bitcoin price, however, fell a second time in the last few months, with many attributing the crash to inefficient liquidation engines on BitMex. The Wolf of All Streets, a popular account on Twitter postulates that despite the price volatility, Bitcoin was, in fact, more liquid than the bond market in the past month during the downturn of traditional markets.
(1) Bitcoin has retraced the majority of the dramatic crash on March 12th – over 80%. There are a number of theories for why price dropped so hard. The most logical and the one supported by those in the know is that Bitcoin dropped because it is a liquid asset – easy to sell.
— The Wolf Of All Streets (@scottmelker) April 18, 2020
While the financial markets seem to have recovered with the Dow Jones completing its best two-week performance since the 1930s, the longer-term impact of unemployment rising and economic growth slowing may cause consumer confidence to waver and impact the stock market once again.
However, the past month has been an excellent test for the concept of Bitcoin decoupling with several days where the U.S. equities markets earlier this month, closing at a loss even while Bitcoin rebounded above $6,000.
The Bitcoin halving is coming up three weeks from now, which might have also helped cause the current Bitcoin rally. With a 50% reduction in bitcoin block subsidy rewards, there could be a positive trend as people seek to accumulate Bitcoin anticipating positive price movements.
More Institutional Investors Coming In
A unique set of market conditions have brought in interest from institutional players such as the $75B AUM hedge fund Renaissance Technologies which has detailed in its Form ADV released late March that its Medallion Funds will be permitted to enter into bitcoin futures transactions and will limit to cash-settled futures contracts traded on the CME.
The Wall Street Journal recently covered the fact that Renaissance’s Medallion fund was up 24% in 2020 through April 14th in comparison with the S&P 500 index that has fallen 11.4% through April 14th.
Medallion uses mathematical models, and its conviction that Bitcoin futures could be a profitable area to apply them indicates positive institutional sentiment around the liquidity of Bitcoin.
Medallion stands as a leader in predictive modeling and machine learning applications boasting 320 employees from various academic backgrounds coding algorithms for the most part. Renaissance’s formal entrance into the market might also inspire other institutional market participants to come into the Bitcoin futures market, making Bitcoin more liquid and fueling further investor demand.
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