As of this morning I am fully out of crypto. (Once again. I have gone in and out.) I am expecting a BTC price crash as a result of CME and CBOE futures markets opening on Dec 10 and 18.
Andreas M. Antonopoulos is one of the smartest bitcoin analysts out there, and one of astonishingly few I trust. He notes that institutional money trade volume will make the past look like a joke. Institutional valuations will drive the price next month, and they could potentially deviate strongly from historic trend up through today.
Andreas goes over the futures market’s fundamental use case very well: It is insurance for bitcoin miners. Such a contract amounts to a bearish price forecast, driving the price down. Bullish speculators have always been able to participate in bitcoin simply by buying. Now bearish speculators will join the mix, and I expect it will nullify most of the bullish speculation, driving the price down.
Those expecting or wanting a bitcoin price drop in the past simply had to stay out of the market. With the opening of futures they can actively bet that the price will drop. It’s interesting to note that this could be done in the past through betting markets such as BitBet or Augur, but Augur is new and low volume and BitBet has always been sketch. More importantly, the people who went to such markets tended to be bullish on bitcoin anyway. I believe the average institutional investor is bearish on bitcoin compared to the average non-institutional bitcoin investor and the average betting participant at those betting markets.
At this point we have 4 value factors:
- Bullish speculation
- Bearish speculation
- Bullish fundamental value
- Bearish fundamental value
2 and 4 are new to the market. This is expected to drive the price down, but to where? To the point of bitcoin’s fundamental value. At this point we should revisit bitcoin’s fundamental uses:
- Substitute for money
- Means of exchange, store of value, unit of account
- Portable. It is neither heavy nor voluminous. This also makes it easy to get in and out of countries.
- Not able to be forged
- Not able to be diluted through central bank printing
- Substitute for gold
- See 1, where gold shares some things such as not able to be diluted. It’s a real money or commodity money, and also an asset.
- Bitcoin is actually less scarce than gold. You might find a new gold deposit or gold in a meteor landing, but bitcoin is completely fixed.
- Substitute for money transfer services
- Sending your friend money through bitcoin is cheaper and faster than a wire transfer via Western Union or similar.
- This was recently enhanced through the addition of the Lightening Network and Segregated Witness
- Smart contracting
- Bitcoin is not built for direct smart contracting, although it can do some trivial stuff. Ethereum is a specialty coin made with this use case in mind. Even though bitcoin isn’t the best at this feature, it has some value coming from this. Lightnening Network greatly increased this value because bitcoin can become an arbitrator for arbitrary contracts created off-chain, and it can execute atomic swaps. So you can have a smart contract written in ethereum but the contracted parties only ever use bitcoin with the lightening network. Why don’t we just switch over to Eth? Some people have done so, and we might, but the Network Effect is a huge reason in bitcoin’s favor.
On the basis of bitcoin’s fundamentals I made a low-confidence price forecast in 2013 which turned out to be quite right. So bitcoin has real value. It’s not private fiat or pure speculation, but there is some speculation. I’m not running the numbers today but a comparative analysis of gold, adjusted for adoption, plus some comparative analysis against the money transfer service industry would provide a good baseline for the crypto industry, which could then be adjusted for bitcoin’s share to arrive at bitcoin’s total value, divide by quantity available to get a coin’s price.
What I want to do today is look at history. The first futures contracts predate the markets. Grain futures such as corn were traded at latest in the 1800s in the US. We can’t look to those markets to say “What happened the day, month, and year after futures opened?” This comparative analysis is possible for gold, silver, and oil.
Crypto Quantic does this analysis, mainly comparing to gold, here. I’m not a fan of the first section of his article, but there’s really good info beginning in the section “While we can’t predict the future, we can look at the past.” The main findings are the bitcoin correlates with gold’s pre-futures market trends, and that gold didn’t have a good time after futures opened:
Gold also had a December futures open, and December is bearish in general, another reason for me selling this morning. Gold futures opening Dec 31, 1974. Look at the 1975 line, which indicates Jan 1, 1975, and you will see this was an all time high which was not touched for 3.5 years. That is the capstone reason for my selling.
In the long run the case is as bullish for bitcoin, or more, as it was for gold:
I echo the conclusion of Crypto Quantic, in his section called “So what can we expect from Bitcoin?”
I wouldn’t expect the Bitcoin trend to follow the gold trend exactly, but if it did, we would see a large drop that would bottom out in about April 2018 (remember, Bitcoin is moving at 4.3X Speed). Followed by an eventual rise to $60k — $80k before another major pull back, with a final run up to $180k.
I see bitcoin’s price going higher and I have every intention of buying back in. But I see a short term crash and an opportunity to re-position (sell high, buy low). I’m not concerned about the crash affecting my short term return, that’s not why I’m selling. I am concerned about the opportunity cost of not re-positioning.