DAIM Issue 25 - Time to Accumulate
Welcome to DAIM's Newsletter. DAIM is a licensed Registered Investment Advisor and asset manager for digital assets and Bitcoin 401(k)s. Please enjoy our thoughts below. #Bitcoin #Ethereum
August 2, 2023
Forecast
Dollar vs BTC
More Whale Watching
Percentage of Addresses in Profit
In the News
Forecast - We’re still in the accumulation zone for Bitcoin. The halving is about 9 months away. Historically, bull runs begin a few months before the halving. If you can afford to allocate capital now, we predict this to be an attractive entry point for long-term holders. The recent XRP ruling breathed life into crypto trading when a judge ruled that it should not be treated as a security with respect to public sales on exchanges. Near-term downside risk is minimal, and we think that it would take a recession or some black swan event to move Bitcoin below $20K. Sentiment seems to want to move Bitcoin further to the upside. More investors are coming around to the idea of a soft landing and feeling comfortable putting money to work in more volatile assets. Outside of the US, China's economic stimulus is making its way into markets. Even though it may seem disconnected from Bitcoin, due to the country’s ban on cryptocurrencies, Chinese investors always seem to find a way to deploy generous capital into attractive investments. For the next month, we see BTC trading between $27,000-31,500.
Dollar vs BTC - Bitcoin’s initial purpose was to be synonymous with money. With that in mind, one would expect the US dollar index to be positively correlated with Bitcoin. The reality paints a different picture.
The graph above plots the price of Bitcoin vs the dollar index, DXY, since 2015. Generally, a strong dollar can be thought of as any DXY point above 100. The last two Bitcoin Bull runs have coincided with a weak and weakening dollar index. One that started above 100 and ended in the 90s. Conversely, the DXY rallied from the 90s to over 110 as Bitcoin tumbled from $67K to $16K. So what can we infer from this particular relationship? It would appear that Bitcoin behaves more like a risk asset than a monetary instrument. From an investment standpoint that isn’t necessarily bad. Holding risky assets over long periods of time has been a great way to build wealth. Bitcoin is no different. If you have the ability and foresight to buy and hold Bitcoin over a long time horizon you will be rewarded. It may not become a universally accepted medium of exchange while you hold it but it doesn’t need to in order to provide immense benefits.
More Whale Watching - Back in December we tracked the 3rd largest Bitcoin Wallet which had accumulated over 141,000 BTC. Fast forward to today and that wallet has a grand total of 0 BTC. So what does that mean? Are the big players cashing out? Not exactly. We can trace the bulk of those coins to this new address. As often happens, people move money and Bitcoin around for various reasons. It’s possible that this is a new cold storage wallet. Someone might have wanted to use separate wallets for separate purposes. Maybe the owner felt their private key was compromised so they moved out of the old wallet. The possibilities are many. What we do know is that the owner has retained a large chunk of Bitcoins. Aside from that main wallet, we could easily track down two other wallets with about 18k Bitcoins. That means that in total we can account for 136k of the 141k Bitcoins. Our original tracking of this Whale showed a majority of the activity to be buying from 2019 through 2021. Since then the Whale has basically held. Some people think that it is Microstrategy moving Bitcoin around. Once again we ask, what do you think?
Percent of Addresses in Profit - One of the benefits of Bitcoin’s transparent ledger is that we can monitor activity, or lack thereof, 24/7. With this in mind, one useful metric is the percent of addresses in profit. Since DAIM began operation in May 2018 the metric has generally stayed between 50%-95%. During the 2020-2021 Bullrun, the percentage in profit was above 95% most of the time! A lot of this may be due to people who bought during the bull run of 2017 and kept on hodling. So, even when the last cycle trough hit $15,700, Bitcoin still had 50% of holders in profit. That says something for an asset but even more about the holders and their willingness to stay long through multi-year cycles. Look at the table below for some interesting stats on Bitcoin addresses.
In the News - Read this recent Coindesk article for Bryan’s thoughts on crypto investing.
