Bitcoin Macros: Have $BTC Prices Bottomed Out?
Do BTC prices follow a cycle? Are they correlated to tech stocks? BTC prices are all about the macros.
“History never looks like history when you are living through it” — John W. Gardner
$BTC Price History Analysis
History can be an amazing teacher. But making good use of historical lessons requires two things:
- Knowing how far back to look; and
- Understanding the context
The first one is pretty easy to figure out. Look back as far as you can. The second one is a lot harder. Context changes over time.
Worse yet, the people writing the history generally get to set the context. When it comes to money and finance, historical context gets even trickier.
Financial historians often write history with perverse incentives to alter the context to fit a narrative. That narrative can be driven by anything from politics, to populism, to greed.
With Bitcoin, these issues are magnified dramatically. Bitcoin is only 14-years old. By contrast, the New York Stock Exchange (NYSE) is over 200-years old.
Both exist in very unique monetary contexts. The NYSE has (with changes) survived the birth of a nation, a major civil war, two global conflicts, multiple banking and currency schemes, and two complete collapses of the financial system.
Bitcoin was born after the last collapse of the financial system. Basically, when someone talks about Bitcoin’s “historical performance”, it’s the equivalent of a 14-year old kid giving you life advice.
It ain’t worth squat.
$BTC, Stocks and the Fiat Age
Without diving into an entire monetary history lesson, the nutshell version for the 20th century USA is: we went from a gold-standard, to a modified gold standard as the world reserve currency, to a floating fiat global reserve system that attempts to peg relative purchasing power to a basket of consumer goods.
The stated goal of the modern scheme is to debase purchasing power by roughly two-percent per year. Trouble is, there are too many incentives to cheat or manipulate the system, and insufficient barriers to prevent that from happening.
The trouble started in the early 1980s. That was essentially when the political winds in the US shifted towards inflationary, deficit (debt) spending. The US broke out the national credit card and went on a spending spree.
And just like if you start running up credit cards to support your lifestyle, it will take more and more credit to keep the game going. Same thing happened in the US until the whole thing collapsed in 2008. But instead of fixing the problem, they just broke out more credit cards.
That’s when Bitcoin was born.
Bitcoin: Sustained 5x Charts
Bitcoin lives and dies by inflation. If the US had sound, prudential monetary management, there would be no Bitcoin. While I am a recent Bitcoin convert, I still retain a very clear vision of what Bitcoin is all about.
The following charts break down Bitcoin prices in a novel way. We all know BTC prices can shoot up and down like crazy. What I did was draw out every time Bitcoin sustained a 5x gain.
I measured from the first substantial price pump to the first 5x after the pump, so long as prices did not dip below the previous 5x. The idea being, this will filter out the mania phases when all the baboons are FOMOing in.
For added flavour, I added lines for the US overnight funds rate (the interest rate). You’ll see why in a second.
October 2010–January 2011
Note the green vertical line on the left. That is the interest rate, which is effectively zero (25 basis points [bps]). This first pump and sustain took around 100 days to go from a little under $0.10 per BTC to around $0.55.
You can see the start of the next pump on the right.
January 2011 to November 2011
This was a pump and dump. The sustained 5x (where prices don’t dip below the 5x gain from the previous measure) took 300 days. There was a wick-high around $32 before the price retreated.
Next pump is on the right. Still at zero-percent interest.
November 2011-January 2013
This period reflected generally sustained growth. A couple of small pumps on the chart, but overall a relatively calm 5x climb. This period took roughly 415 days.
Still at zero-percent interest.
January 2013-July 2013
Another pump and sustain. This 5x took 190 days. Still have that juicy zero-percent interest rate.
July 2013-May 2016
This pump dumped into sustained growth to the next 5x. The red line between the green zone and the red zone is a 25bps hike. It took 1050 days to reach a sustained 5x during this period.
The interest rate, which had been 25bps (effectively zero) rose for the first time since the collapse of 2008.
May 2016-July 2017
Sustained growth into a pump. First growth spurt in a rising interest rate environment. Took 420 days to achieve a sustained 5x.
BTC price growth continued, and was solid through three 25bps rate hikes during this period.
July 2017-Today
Sticking to my methodology, I still can’t say we have a sustained 5x because the next 5x gain is the current all-time high at $69k. Not to mention, we are in a clear downward trend and it’s possible we can still dip below the previous 5x at $20k.
To get to the first 5x gain during this (on-going) period took 1245 days (July 2017-December 2020). To call this a sustained 5x, we’d have to clear $69k and stay above that without dipping below $20k.
Next 5x above $69k puts us around $350k. Impossible to say when that could happen. I wager if it does head that direction, I think it’s going to be a shockingly fast move to $350k.
Like, FOMO on steroids head-spinning fast. A little hopium never hurts.
It’s worth noting the price action compared to previous periods. As you can see, the 2018 peak coincided with the rate hike to 1.5%. Price went down with each subsequent 25bps hike.
In fact, price got so low in 2019, it almost broke below the previous 5x gain line. That would have been the first time in Bitcoin “history” if price had done that.
There’s that 14-year old kid giving you life advice again.
The other, REALLY noteworthy thing is the huge price increase after the COVID-19 interest rate drop. That also coincides with a massive dump of helicopter money from the Fed.
Bear in mind, previous Federal Reserve monetary interventions consisted of the Fed buying trash equities from (otherwise insolvent) institutions and direct purchases of US Treasuries.
The COVID-19 helicopter money dump was direct to consumer and small business money printing. AKA, the same kind of money printing that causes hyper-inflationary spirals in tin-pot third-world countries.
Institutions that receive inflationary dollars don’t spend them on TVs and toothpaste and clothes for their kids. They buy equities, real estate, companies…you know, things that make money.
That’s also why all those things are so expensive now. Consumers and small businesses that receive inflationary dollars (stimulus checks and no-payback payroll and expense “loans”) dump those dollars into stuff that costs money. Cars, clothes, toothpaste, milk, electronics, etc.
Retail investors that still had jobs used a lot of that stimulus to buy Bitcoin.
$69k BTC was a funny money pump
There was almost zero-chance BTC would hit $69k in 2021 without COVID money printing. Just like there is almost zero-chance crypto markets pump again if the Fed keeps raising rates. Just look at the BTC chart in the 2.5% rate environment in 2018.
The price action is clear as day — 83% down. For perspective, 83% down on the recent all-time high of $69k puts us back to a $12k BTC.
BUT, just like back in 2018, sooner or later the broader market and the various debt and credit markets are going to collapse (again). And the Fed will be forced to start inflating and buying trash equities and treasuries (again).
There is no other playbook.
There is no magical land where the Fed “gets serious” about “fighting inflation.” The only things they have are money printing and tinkering with the CPI to make it look like inflation is better than it really is.
Or they collapse the entire global economy (again). There’s still that angle I suppose.
Conclusion
If I’ve said it once, I’ve said it…well, probably three or four times now. Bitcoin is probably going to be a helicopter or a rope out of the burning building that is global finance.
But that helicopter (or rope) still needs the Fed funny money to work for now. BTC is not mature enough yet. I will just about guarantee crypto markets bleed until the Fed printer is back on.
I also think the next Fed printing “cycle” might be the one that pushes Bitcoin into true helicopter/rope status. First dovish pullback, like a 25bps drop in rates from the Fed (it’s coming), and I’m buying as much BTC as I can.
Unfortunately, cash is king until then. Trouble is, that cash is debasing fast. My analysis/guess says Bitcoin will likely test the previous 5x line before the bleeding stops.
I’d further say it will almost certainly drop below that if the Fed raises rates to 2.5% like they keep threatening. That’s a conservative $12-$18k Bitcoin, FYI.
My hope is broader markets tank way faster than the Fed anticipated and they turn the printer back on before then. Either way, I’m staying in cash or doing a little momentum trading for giggles.
I’m definitely not stacking crypto anything, and I’m certainly not buying any “dips”.
My two-cents says those aren’t dips — they’re knives. Charts don’t lie, right?
Here’s a quick shill for a Medium subscription. It will allow you to project your essence into another dimension. It will also buy me a cup of coffee. Please and thank you.
And remember, these are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.
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