Bitcoin is on a roll again, and analysts, clearly stumped by recent price movements, are beginning to believe that a repeat of years gone by might just be in the making. You only have to go back to January to hear every dour prediction that you could imagine for anyone brave enough to maintain a position in Bitcoin or any other cryptocurrency for that matter. The consensus wisdom of the day said “sell”, like your life depended on it.
According to these gurus, the sky was about to fall, but wait, it did not happen? Bitcoin powered through February, and then assaulted the $4,000 level, which was supposed to be formidable resistance, only to blow past $5,000, another psychological barrier that collapsed when the BTC train blew into town. Cynics and supporters alike were beside themselves, trying to figure out what was powering the surge in all things crypto.
The most prescient analysis came from Tom Lee, the co-founder and head of research for Fundstrat, an independent research boutique firm that serves a broad array of clients, including institutional investors, wealth advisors, pension funds, and high net worth individuals. His premise, based on an analysis of “Whale” accounts on the Bitcoin blockchain, is that the big players that cashed in large account balances back when BTC was near $20,000 are now back again, accumulating for the next big run.
In a recently televised interview with CNBC’s Squawk Box, Lee revealed that, “Bitcoin had a rough 2018. And for much of 2019 it’s been steadily climbing. And from what we can gather it’s because there have been positive things taking place. A lot of the old whale wallets are buying Bitcoin, so it’s been slow accumulation and steady accumulation. That means some of the original owners of Bitcoin, some of them who liquidated at $20,000 are starting to buy back.”
Lee also has a proprietary model that attempts to calculate a “fair value” for Bitcoin, based on network algorithms: “If you were to take a combination of active addresses and activity per user that’s explained over 90% of Bitcoin since 2013, the fair value for Bitcoin right now is $14,000. I’m not saying it has to trade at fair value. Bitcoin is a network value. A commodity during a bull period – and Bitcoin’s above it’s 200-day – generally trades 2 to 2.5 times its breakeven. So that would get you around $14,000, again. But in a bear market it could trade below its breakeven.” Bitcoin closed today at $5,260.
We could stop right here and be satisfied that one respected analyst put his reputation on the line to predict that $14,000 is a target that Bitcoin will achieve in the not too distant future. Other analysts, however, are claiming that Lee is too conservative in his estimation of future prospects for the leader in the crypto domain. Peter Brandt, a respected trader in the crypto realm, feels that the current momentum driving BTC price behavior is reminiscent of the parabolic rise of Bitcoin from $150 to $20,000 that occurred over the 2015 to 2017 time period.
According to Brandt:
I think the analogs are holding remarkably well and based on those analog studies, I think cryptos now will go back into a parabolic bull market. The only question I have is do we rally here some and then sometime in late summer check the late 2018 lows or not? There is a chance that it does, there’s a chance that it doesn’t.
How high does Brandt think Bitcoin could go? His recently published analysis contends that, “The Bitcoin price could potentially recover quickly from the current level at $5,000 to over $50,000 if it continues to show strong momentum.” But Brandt does not stop there. He sincerely believes that there are “strong technical reasons to support the potential of Bitcoin to rebound beyond the $20,000 all-time high to a range between $50,000 to $72,000.”
Whoa! $72,000 is way out there, much higher than the $14,000 line in the sand staked out by Tom Lee. Lee’s latest response to what could be termed irrational exuberance is couched in conservatism, but the positive spin is ever present in his remarks, just the same: “We see fewer reasons to question the recent recovery [in] Bitcoin prices—the best quarter since 2017. While the key technical price hurdle is BTC closing above its 200-[Day Moving Average] (currently ~$4,600 and falling by $15 per day), we see 2019 as positive risk/reward.”
If you review both men’s projections, their analyses are highly dependent on the short-term moves of Bitcoin over the forthcoming weeks. Can BTC push through resistance levels and convert them to support for future moves upward? If it were only Bitcoin moving forward, then there might be a case to suggest that a huge round of profit taking might be in the offing, but alternative cryptocurrencies have also been appreciating, as well. Litecoin, Ethereum, and Binance Coin have rebounded, an indication that investor sentiment favors the entire crypto sector.
Is it time to bet the ranch on Bitcoin? Lee, once again, is in the conservative camp, recommending that your “bet” should not exceed 1% or 2% of your portfolio: “It’s basically the idea that you can afford to lose 1%, if it’s 1% of your portfolio. For the majority of people, 1% is a small risk bet. But, Bitcoin makes all of its gains in 10 days in a year. I think this is an example that if you exclude the 10 best days, Bitcoin loses 25% a year. So, you’ve got to essentially hold it, or hodl it as they say, to really capture the gains.”