Paradigm Insights #001
Inflation is coming…
In the Market:
Since January, Bitcoin dominance dropped and altcoins like Doge took off. As BTC.D dropped, we saw bitcoin fluctuate between 40–60k. These were heights Bitcoin has never seen before and soon crashed around mid-May. When Bitcoin crashes, alt coins crash twice as hard causing bitcoin dominance to rebound. Not many people understand this but it’s not a new phenomenon. Alts have most to gain when BTC.D is high.
It seems there has been more fear and uncertainty in the market than we saw during mid bull market of 2017. Elon Musk pushes for larger adoption and then rescinds it. And then pushes again. ESG (environmental, social, governance) investors and related media has everyone worried about the negative implications of a successful bitcoin in its current form. It leads investors to question, is the bull market over? And is buying Bitcoin a good idea?
The larger picture is that trillions of dollars printed in the past year, including direct payments to US citizens, is working on reflating the economy. Not just the US though, other countries had given their citizens stimulus money to help relieve the pain of job losses and other global pandemic related issues.
With such a large infusion of newly printed money, we get into the concept supply and demand in the money market. More cash in the system usually means more demand for products and not enough supply to meet it. This means inflation and high inflation causes a rise in the cost of goods. Overall, the dollar is weakened. The Federal reserve has a variety of tools to keep things “in check”. I won’t go in depth into what they are doing and what they possibly could do, but it all seems perfectly aligned with the 4 year bull market cycle of Bitcoin. Bitcoin is relatively deflationary in comparison to the dollar as there will only be 21 million bitcoin in existence.
Many exciting developments have taken place so far this cycle. Decentralized finance has taken hold. Between yield farming and staking, crypto holders are earning APY returns they would never find in the traditional banking system. This is on top of a current 4–5x return on it’s price. Even with the crash in May, there is still a large consensus that the Bull market is not yet over. Many still believe Bitcoin will likely break into the hundreds of thousands in the next year. With price action reaching resistance in the past few days, we can expect a large amount of negative media testing sentiment.
Technical Analysis:
Moving averages are an important indicator of technical analysis. Between its peaks and valleys, Bitcoin price typically likes to find its way toward long term moving averages. There is strong resistance at 42k and support has built up in the 34–36k range.
Bitcoin recently broke out from a wedge pattern that was pushing sideways. Upper resistance is around 48–50k and again above previous all time highs. On the lower end of the spectrum, many are expecting to bottom out around 27k. According to my analysis, if this breaks, we could see prices in the lower 20’s and possibly pushing down to 18k. While this is possible, it seems highly unlikely given existing market conditions.
Major Upcoming Developments:
A common acronym used in this section is EIP or BIP, standing for Ethereum Improvement Proposal and Bitcoin Improvement Proposal respectively.
BIP 340 Taproot — Taproot will integrate the Schnorr digital signature scheme into Bitcoin, upgrading Bitcoin’s core cryptography. Taproot builds on the SegWit upgrade to improve Bitcoin’s privacy and lower transaction fees. Taproot makes future Bitcoin upgrades easier by reforming Bitcoin’s scripting language. Taproot is live.
EIP 1559 (and others) Ethereum London- Ethereum London will bring about a variety of improvements. It’s expected go live at some point in July and will most importantly bring lower transaction fees.
In Conclusion
The future is bright for Decentralized finance. Despite the FUD in the media, there is still a tangible level of confidence in #hodlers and Bitcoins capabilities. Governments, large institutions, and society in general have come to recognize bitcoin as a legitimate asset. There is news of El Salvador accepting Bitcoin as a legal currency with other nearby countries looking to follow suit. As an investor or business owner it is important to have a strategy, get the facts, and minimize emotion.
As time goes on and the newsletter progresses, you can expect more in depth information, including market research, technical analysis, and blockchain developments. The plan is to release a paid subscription plan as well as a free version of the newsletter with less “juice”. If interested in either one please sign up on ParadigmDynamics to get a copy sent directly to your email.
Disclaimer:
While there are many quality sources discussing crypto, there are many that aren’t. In doing research you should always be skeptical and weighing opinions against what you know to be true along with a majority consensus. Even the most experienced traders in crypto are susceptible to misinformation, including myself. Please assume all assets discussed in this newsletter are held by its writer unless otherwise specified. Do not use this newsletter to make any financial decisions. All investment decisions should be your own and the newsletter should be treated as purely educational information.
