Bitcoin Drops Below $100k

Benjamin Cowen

Introduction to Bitcoin's Current State

The current price of Bitcoin is below $100K, prompting discussions about the ramifications of this drop. The speaker aims to explore whether this drop is normal or not, and what indications might suggest it's part of a larger trend or an anomaly.

Historical Context and Market Cycles

  • Market Cycle ROI: Looking at the market cycle ROI of Bitcoin can provide context. Historically, after a significant rally, a drop can occur before the market picks up again. The speaker notes that despite the current price, the market cycle ROI doesn't look bad, suggesting that the current situation might be a normal part of the cycle.
  • Seasonality: January of the post-election year has seen significant drops in Bitcoin's price in the past, such as a 30% drop in January 2021 and a 35% drop in January 2017. This historical context suggests that a drop during this period is not uncommon.

Comparisons and Analogies

  • QQQ Analog: The speaker discusses the QQQ analog, comparing Bitcoin's current cycle to the Nasdaq-100 Index (QQQ) after its ETF launched in 1999. However, the speaker notes that Bitcoin did not follow the QQQ's exact trajectory, reaching only $109K instead of a higher peak. This deviation could be positive, indicating Bitcoin might avoid a prolonged bear market seen in the QQQ's history.

Potential Scenarios and Factors

  • 30% Drop: A 30% drop would put Bitcoin around $75K, a level that has been a significant point in the past. This scenario could still keep the market cycle intact, as such drops are characteristic of post-halving year corrections.
  • Left-Translated Cycle: The possibility of a left-translated cycle, where the peak occurs earlier in the cycle than expected, is discussed. This could happen if macroeconomic factors like inflation or unemployment rates start to rise significantly, causing a quicker downturn.
  • Fed's Actions: The Federal Reserve's actions, particularly the potential start of quantitative easing (QE), could significantly impact the market. A drop in the market could prompt the Fed to reverse course, potentially supporting the market.

Ethereum and ETH/BTC

  • ETH Struggles: Ethereum's struggles, including its historical sell-offs following rate hikes by the Bank of Japan, are noted. The speaker suggests that ETH/BTC could bottom out soon but needs a reason for the Fed to start QE, which could come from a market-wide sell-off.
  • Opportunity in ETH: A potential drop in ETH could present a buying opportunity, similar to what was seen in the S&P 500 during the 1990 recession.

Conclusion

The speaker concludes by emphasizing the importance of understanding historical context and potential scenarios. A 30% drop in Bitcoin could be a normal correction, but a deeper drop might indicate a different cycle. The start of QE could change market dynamics, especially for altcoins, and the speaker remains cautious about predicting the market's direction, encouraging viewers to stay informed and consider various possibilities.