Bitcoin Update – Is a Sentiment Shift Occurring?

Bitcoin and the broader digital asset market have been swept up in lingering macro-economic events for nearly a year now, resulting in the asset losing over 70% of its value in this time.  Unfortunately there are many analysts and traders that feel this downturn may be here for some time, with the market bottom not yet having been reached.  Every once in a while though, a bit of optimism is needed.  With that being said, the following are a few key pieces of commentary and recent events which potentially point to a changing of the tides.

Exchange Activity

Although decentralized exchanges have skyrocketed in popularity over the past few years, their centralized variants still underpin digital asset trading.  As such, it is prudent to watch what kind of activity is taking places within these exchanges, gaining insight in to market sentiment through trader behaviour.

One of the more popular metrics that many watch as an indicator on sentiment is the inflow and outflow of capital on these centralized platforms.  The concept is simple – inflows indicate that traders are getting ready to sell off their assets, while outflows indicate that traders are sending their assets to be stored for safe keeping.  With that in mind, it is a very promising sign that over the past 30 days, we have seen over 120,000BTC exit from such platforms.

A Minor Decoupling

Anyone that follows Bitcoin will have heard at some point in time that it is a great hedge against inflation, and is not correlated with most traditional markets.  While this may one day be true, it has certainly not been the reality over the past year.  Over this time, Bitcoin has basically mimicked tech stocks, dropping precipitously.  September however began to show a divergence from this trend with Bitcoin only losing 3% of its value.  Meanwhile the Nasdaq 100, along with the S&P 500, each dropped roughly 12%.

Loss > Profit

As it stands, it is believed that over 50% of BTC holders are now in the red on their investments.  While this may sound disconcerting at first, there may be a silver lining.  Investors in the red are much less likely to sell their holdings, giving credibility to those calling $19,000 the floor for BTC.

With more than 50% showing a loss on their BTC investment, it simply means that the amount of sellers is rapidly diminishing, leaving only long-term holders left in the market.  Essentially, at this point most of the ‘weak-hands' have been ousted from the market.

Supporting Commentary

Whether wise or not, many people make their investing decisions based upon commentary from those that have made a name for themselves in the industry.  Although many may currently be spreading nothing but doom and gloom, there are others like Larry Lepard, Founder of Equity Management Associates, that remain optimistic.

In a recent conversation, Lepard shared that he believes Bitcoin going 100x (meaning $2M BTC) is a likely scenario within the next 5-7 years.  When asked what would need to occur with regards to adoption for this value to be achieved, Lepard indicated that Bitcoin needs to simply stay the course, and that based on the performance of BTC since inception, it has demonstrated a repeating cycle which posts higher lows after each correction.  As long as usage metrics continue to rise, this repeating behaviour should continue.

In addition to this lofty prediction, Lepard spoke highly of the Lightning network and what it means to Bitcoin, stating that, “…before the lightning network came along, the criticism that Bitcoin was too slow and too expensive for everyday trading was absolutely true – did not work…Lightning changes the entire game.”