08 December 2023

If November was kind, December is proving to be generous. Bitcoin is up 15% this month so far and the rally seems like a beginning. Ethereum has broken out today to a 19-month high while Solana is starting to make a move towards $75 a piece. Is this euphoria? If so, will there be a corrective rally soon? Are you celebrating an early Christmas?

Concerns of a possible recession remain – but in the short-term, there isn’t much to pull down crypto.

What’s likely to happen between now and Bitcoin’s halving in April? Find out in our Hot Take today.

Top-3 stories of the week:

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The newsletter is put together by Giottus Crypto Platform. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $1.6 trillion - UP 11.8%

• Bitcoin price - $43,494 - UP 14.0%

• The dollar index (DXY) - 103.61 - UP 0.3%

• Bitcoin Dominance - 53.9% - UP 0.9%

• Crypto Fear and Greed Index - 72 - the market is in greed

THE HOT TAKE

Bitcoin’s tryst with destiny

January 2024. Is this the month that the first Bitcoin spot ETF gets approved in the US? If so, it will be a great win for all crypto enthusiasts – one that will be remembered for long.

It is exactly with this hope that Bitcoin price action is zooming past resistances like they didn’t exist. One question remains. What happens immediately after?

Today we answer three key questions around this – 1) Why is Bitcoin (and crypto) surging?; 2) For how long will this continue?; and 3) When do we buy Bitcoin or sell them?

Short answers to above: Bitcoin’s rally is driven by speculations around spot ETF approval in Jan. 2024. The rally should continue until first week of Jan. where it will likely top out around $48,000+. If a dip occurs post the event, it presents a great opportunity to buy leading to the halving when price may range between $50,000-$60,000.

Let's dive in.

1) Optimism around Spot ETFs is the flagbearer for recent success

The most cited reason for Bitcoin’s price action has been lot of optimism related to the potential approval of a spot ETF. Although the US SEC has continued to drag its feet on a firm acceptance, it is generally believed that the fight is nearing the end. Bloomberg analysts James Seyffart says, “the window for spot BTC ETF approvals ranges between January 5 and 10, 2024.” Speculations of a trading ticker already registered for use post approval are adding fuel to the fire.

Addition of a spot ETF will bring many new retail investors into the game over time and will improve the trust in crypto overall. Many analysts also point to Gold’s price surging post its ETF going live.

2) Holders are now in profit but are not selling

It’s remarkable to think that more than 90% of the BTC holders are now in profit. How quickly can emotions and portfolios change in a year!

Although we are observing some traction of inflows/outflows in top centralized exchanges, Bitcoin holders don’t appear to have resorted to selling into the strength of the current price. While the price is up 165% year-to-date, the amount of Bitcoin not in circulation hit a high of 69% this weekend. This lack of liquidity in the circulating supply creates a positive feedback loop.

3) Bitcoin TA and spot ETF impact

While the euphoria is likely to last till the new year arrives, two things can indicate that the Christmas rally is coming to its end. One, Bitcoin hits $48,000 – a key resistance level coinciding with its 0.618 fib extension (golden pocket) and two, a sell-the-news event post ETF.

We did observe this with Ethereum when its ‘merge’ happened in Sep 2022. The asset rallied into $1,800 near the merge event and lost 33% value immediately after.

Bitcoin holders must be prepared to face such a scenario in the new year. There is also a third scenario – if Bitcoin ETF approval is actually postponed by the US SEC, the decline can be harder.

4) Mid-term impact of ETF approval and what’s ahead near the halving

As the approval of Bitcoin spot ETFs opens the floodgates, ETF’s are expected to fill up over the first few months (likely between January-April 2024). This will create a considerable demand for Bitcoin at a time when the supply is about to get cut in half (halving).

In an optimistic scenario, we expect Bitcoin to reach $55,000 post halving. The major driver for a bullish outlook is the deflationary tendency of Bitcoin supply.

According to popular on-chain analyst Plan-B, Bitcoin is now on an imminent path to new heights soon. He uses a stock to flow model to predict the Bitcoin prices and believes that a rally near $60,000 is likely brewing.

5) Bitcoin getting overpriced? MVRV is on the up

The Market Value to Realized Value (MVRV) ratio is an indicator that measures the ratio between the Bitcoin market cap and the realized cap. In simpler terms, MVRV going high means Bitcoin is overvalued.

Historically, values over '3.7' indicates a price top and values below '1' indicates a bottom. According to Reflective Research co-founder, Bitcoin is far from being overvalued currently based on historic readings. We believe it is ideal to buy Bitcoin until it reaches $55,000. After this level the indicator reaches the 3.7 Z score threshold, pushing the asset into overpriced territory.

What can investors do now?

• As we embark on a new impending bull run, fear of missing out (FOMO) can be a bitter pill to swallow. The speed at which Bitcoin surged from $40,000 to $44,000 has reignited discussions among investors and enthusiasts, leading to increased curiosity about the sustainability of this rally. Do not fall for FOMO.

• Wait for confirmation of a spot ETF – if it happens and a dip ensures, cost-average at those levels. If spot ETF is delayed, there may still be time to grab Bitcoin near $30,000 levels.

• Altcoins will end their rallies as soon as Bitcoin dips – make sure you are prepared with a BTC + ETH heavy portfolio in case there is a big drop (maybe an announcement of recession).

• There is a lot of time – the market is just heating up. You can make good gains over the next two years if you follow a system that works best for you.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto-asset or VDA investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.