Grayscale Investments: Bitcoin Parallels the Historic 2017 Bull Run

Hi everyone

It looks like bitcoin has entered calmer waters in the span of a few days. In this edition, we’ll take a look at Grayscale’s recent report that tells a bitcoin story of historical precedent, Peter Schiff’s incessant moaning about bitcoin going to zero, and of course the bitcoin charts.

Let’s dig in.

Grayscale: bitcoin looks like the pre-2017 bull run

A fresh report by cryptocurrency fund Grayscale Investments argues that the current bitcoin market structure “ parallels that of early 2016 before it began its historic bull run.

Grayscale expects that demand for bitcoin will exponentially grow as it transitions into the bull market, highlighting the growing need for a scarce monetary commodity that reinforces the use-cases for cryptocurrency usage.

The report identifies a number of on-chain indicators showing increasing interest in the crypto space, noting an uptick in long-term holdings over and above short-term speculation. This comes amidst historic lows for the number of bitcoin held on exchanges — a phenomenon that was also observed during the last cycle.

The Grayscale researchers note that daily active addresses are also at their highest level since 2017’s all-time highs.

According to the report, loosening monetary policy that arose from the United States’ abandoning the gold standard has created cycles of debt-fueled asset bubbled which are subsequently followed by aggressive quantitative easing.

The investment firm notes that the increasing dependence of the US economy on quantitative easing (money printing) in order to keep things afloat makes it harder to ever get off such economically damaging policies. The S&P fell 20% over three months in response to the Federal Reserve floating plans to reverse its monetary expansion in 2018.

Despite the US dollar remaining “ structurally strong relative to other currencies” the report asserts that investors who worry about inflation amidst the “ unprecedented monetary and fiscal stimulus “ are looking for ways to protect their wealth from an ever-expanding monetary supply. This in turn bolsters the argument for bitcoin as a digitally scarce store of value.

Grayscale cites the scoring system used by hedge fund manager Paul Tudor Jones to assess Bitcoin’s perks against cash, gold, and financial assets and determine the market’s upside potential.

Peter Schiff doubles down on his broken-record btc stance

As it happens, gold-bug and infamous bitcoin basher Peter Schiff again predicted the demise of bitcoin via a trader and investor exodus following David Portnoy’s alleged departure from the space.

The prominent boomer gold-bug insisted that the departure of the eccentric millionaire will be the last “big name” to enter the bitcoin realm on Saturday.

Recently, many in the cryptocurrency community were elated by the end of Portnoy’s crypto journey after he tweeted that he would rather watch and wait after losing $25,000 due to an ongoing Link correction.

Five hours later, however, Portnoy stated: “ I’m out on crypto because coins don’t always go up. Stocks on the other hand continue to always go up.”

The decision was applauded by ardent crypto-critics, including Peter Schiff who takes every opportunity to have a go at bitcoin. The gold-bug then went on to say that “big names” like Paul Tudor Jones would also try to get out of their positions, despite the legendary hedge fund manager having consistently re-iterated his point on bitcoin as a hedge against infinite money.

To be fair, it’s entirely possible that Peter Schiff is simply religiously devoted to hating bitcoin after having missed the boat for ten straight years, and despite multiple attempts by bitcoin OG’s to convince him otherwise.

In any case, here’s some shameless self-promotion. This is my platform after all.

Technically speaking

Macro structure shows large amounts of unspent bitcoin

According to on-chain data from, the number of unspent bitcoin from whale wallets (containing 10,000 btc or more) is increasing significantly at these levels. As you can see, there were several price-points over the past year or so where high net worth investors accumulated vast amounts of the cryptocurrency.

Since the $11,000 level was decisively conquered, investors have been aggregating more and more bitcoin within a relative short time frame in comparison to prior accumulation periods. This could be whale-fomo setting in, which leaves one wondering: do they know something we do not?

Bitcoin HTF suggests higher levels are likely

Since the last newsletter, bitcoin dominance experienced a marginal uptick to 61%, which probably came about due to an altcoin correction. Presently bitcoin dominance seems to have stabilised above 61% according to stats from Trading View.

Over the weekend, bitcoin continued to retrace and subsequently bounce from $11,400, confirming it as a pivotal level in what could be a developing range described in the previous mailout. A bounce from this level, however, suggests that the prospect of continued upside is still well in the cards until proven otherwise.

Indeed, bitcoin has now formed a third consecutive higher low on the daily chart, while also printing a triple bullish divergence on the RSI (relative strength index). On the flip side, the number one crypto has also formed two consecutive bearish divergences, printing higher highs in price against lower highs in the RSI.

However, given that this is happening in the context of a bull market which has broken out of a 2-year bear market structure, the bias is bullish until $10,500 is convincingly broken.

Interestingly enough, the 20-daily EMA held as support for the second time and bitcoin is now trading back within an ascending channel. As previously noted, horizontal levels and pivot points tend to carry more weight than relatively short-term trendlines.

In any case, provided bitcoin does not breakdown below $11,500, there’s no reason to rule out continued upside this week.

4-hour (LTF) replicates higher time frames

Bitcoin’s 4-hour situation more or less replicates the daily-time-frame situation on a magnified level. Should the fractal continue to play out in a similar fashion to the previous pump, it’s possible that bitcoin will establish a range below $12,000 before resuming the trend. Price-action is still developing so it’s next to impossible to tell whether bears will manage to drive the price down to $10,500 given that $11,400 has been confirmed as support thus far.

A close above $12,100 would suggest an impulse move to the top of the channel at around $12,600. On the flip side, a rejection from this level would suggest further downside to at least $11,000, with $10,500 being the ultimate short term bearish scenario.

Ethereum and Litecoin front-running bitcoin?

Both Ethereum and Litecoin have taken to front-running bitcoin moves. At the time of wiring, both have surged 3.4% and 2.5% respectively — gaining ground against bitcoin in the process which has increased a modest 1%. During these upwards increments, both have tended to act before the king. Will recent history repeat itself? Time will tell.

A correction will eventually come

Presently, the global economic situation has completely parted ways with global stocks for a variety of reasons, the main one being continued support from central banks. However, now that the S&P has hit fresh all time highs, a higher degree of caution is warranted moving forward. More specifically, it’s likely that stocks will continue to push on higher at least for the time being. But as euphoria sets in, I’d be weary of indefinite upside despite central bank support.

One must also consider the volatile political situation in the United States and the incoming elections on November 3rd. Since the SPX has been touted and used as a political football, then it would be wise to expect an uptick in volatility around election time as various factions act on their respective interests.

And even though bitcoin has been correlated with gold recently, a major stock market dump will drag everything down with it as it has done before. As such, being ready for this possibility makes sense.

Here’s an interesting thread Raoul Pal retweeted. Contrary to popular belief, Raoul expects that a USD deflationary event is on the horizon. Check out the thread for some interesting insight.

Incredible thread. Bravo Travis

- Raoul Pal (@RaoulGMI) August 22, 2020

Finally, it’s easy to get lost in overzealous bullish sentiment especially when one considers the fundamental bitcoin narrative. However, trading and investing are two distinctly separate things, and one cannot mistake one for another. Given it’s 90-plus-percent profitability lifespan, bitcoin tends to transfer value from the impatient to the patient, and this bull-cycle will be no different. The trick is to stay level headed and maintain a cold analytical stance through and through.

Admittedly, this is always easier said than done.

May your gains be high and your losses low.

Catch you next time.

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Read More: Tone Vays: $50,000 bitcoin is “reasonable” after new ATH

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