Sound Money

_{Posted on 30 Oct, updated in Nov}

I expect that bitcoin will a new record high, surpassing the December 2017 high, before Q2 2021, perhaps sooner. All Time Highs (ATHs) optically appear expensive, but this event will merely confirm the next phase of the bull-market. I’m preparing for the bull-market to last another 3 quarters after the next ATH with potentially 500% gains.

Halving confirms next bull phase

Bitcoin has experienced 4 bull-markets and 3 bear-markets since it was invented in 2009. There are numerous factors that determine demand for bitcoin and these can change over time, but supply is predetermined. Total supply is capped at 21 million and supply is released every 10 minutes when a miner is rewarded for adding a new block filled with transactions onto to the blockchain. The block-reward halves every 4 years (referred to as the “halving”). Between 2009 and 2012 the block-ward was 50 bitcoin, in Nov 2012 it dropped to 25 bitcoin, in July 2016 it dropped to 12.5 bitcoin and in March 2020 it dropped to 6.25 bitcoin. Halvings take place during bull-markets and the reduction in supply is a strong factor that triggers the next phase in the bull-market. In 2012/2013 it took 3 months from the halving to surpass the previous ATH and in 2016/2017 it took 8 months.

New All Time Highs happen each cycle

During a bull-market, the price surpasses its previous ATH, on the way to new ATH. In 2013 bitcoin rallied 3832% from $27 to its eventual peak for that cycle at $1137 in Nov 2013. In 2017 bitcoin rallied 1542% from $1137 to its eventual peak for that cycle at $18674. I.E. ATH’s are merely a marker during a bull-market, not a signal that it’s over.

Strong subsequent returns from ATHs

Subsequent 6-month returns have been very strong. In the 2010/2011 cycle, the average 6-month returns from All Time Highs were 968% (all observations of ATHs in daily data). In the 2012/2013 cycle, the average 6-month returns were 83%. In the 2016/2017 cycle, the average 6-month returns were 138%.

There have been some corrections during bull-markets that have been long enough to record negative 6-month returns before the end of the bull-market (2012 most notably). Most negative subsequent 6-month return observations come right at the end of the bull-market. In the graph above, the negative observative are dwarfed in size by the positive observations, but don’t be fooled. In the graph below I’ve isolated the negative observations to show their severity. A 90% drawdown over 6-months is extreme and needs to be avoided. I always try to include the other side of the argument, for prudence, but the point still stands. These negative observations only take place right at the end of the bull-market. We’re not there yet.

BTC peak expected in Q4 2020

From the 1^st ATH in the 2010/2011 cycle it took 8 months until the eventual price peak, in the 2012/2013 cycle it took 9 months from the 1th ATH to the peak and in the 2016/2017 cycle in took 10 months. In other words, you’ve had about three quarters from the first ATH until the eventual peak. That’s a fair amount of time to get your bear-market strategy in place.

Return to your strategy; Avoid FOMO

Selling at the looming ATH may be prudent for those who are trying to diversify concentrated exposures. Perhaps some crypto whales (large holders) are taking profits to enjoy the spoils of their investment? Conscientious risk averse investors may want to rebalance towards their target weights and lock-in profits. But an ATH won’t signal the end of the bull-market by any stretch of the imagination. A crypto bear market remains unlikely until 2022. I’m focused on the bull-market strategy. I expect it to peak in approximately Q4 2021 and bitcoin could surpass $100,000. I’m not waiting for that price target. I’ll assess a host of indicators in the coming year. But I’m accumulating and supporting adoption for now. The looming ATH is another step in the bull-market. Use the time before the ATH to accumulate holdings. Don’t buy because of FOMO (fear of missing out), buy because of fundamental knowledge ahead of time. FOMO is a dangerous emotion that will drive the market in the next year. You want to observe FOMO, rather than be caught up in it.

I have a longer recent article on bitcoin here, where I detail my recent analysis.