Paradigm Insights #002
The Holding Pattern…
In the Market:
At the time of the last newsletter there was anticipation around what the FED might do to help ease the pressure of inflation. The biggest move IMO was the 800 Billion dollar reverse repo that took place literally overnight. A reverse repo is where the FED exchanges a banks cash reserves for very low short term interest T-Bills. Long story short, it strengthens the value of the dollar. It was the largest reverse repo in US history. Powell also hinted at interest rate increases in 2023. That’s far enough away for a variety of things to happen and it’s very possible the crypto market might be 5–10 trillion dollars larger by then.
There’s been recent FUD around tether… AGAIN. In 2017 there was a lot of fear around a tool crypto traders use to “lock in profits”. Tether is a stable coin pegged to the value of a dollar. Hypothetically, 1 tether is backed up by 1 real USD. At the time it was the first of its kind and many thought that there was no way they had the bankroll to back up how many ‘tethers’ they were claiming to have. There’s a lot that goes into this type of regulatory FUD and you can read up on it here. What you need to know is that there are plenty of other stable coins that are more legitimate and in the graces of regulatory powers such as USDC. You can read more about USDC here. Coinbase and Circle are the parent companies of USDC and I should also mention they offer much higher interest rates than a typical savings just by storing your fiat in the form of USDC.
It leads up to the idea that we will soon see more and more countries either pushing for their own CBDC (Central Bank Digital Currency), the same way China has. That or they will push for Bitcoin or another Cryptocurrencies’ adoption, the way El Salvador has. China bringing on their own CBDC is meant as a way to control their money. They’ve also taken new steps in banning bitcoin and it’s large mining population. This had an effect on the network where difficulty dropped nearly 28%. The largest decline in hashrate, ever. It has been a true test of the networks resilience. It’s also good for other miners as there are more rewards given per miner when difficulty goes down.
The fact is that there IS a need for economies to become more efficient. This usually means change through progress, and with change comes risk. My personal opinion is that we often are terrible at assessing risk and that’s largely due to our emotional states. You talk about risk, real or not, and fear kicks in. On the other side of the spectrum are benefits, which can also skew the ‘realness’ of a given risk. Ultimately, with all the potential risks, I believe there are qualities found in Bitcoin that make it superior to any CBDC that might be created. At the very least, more and more are thinking critically about ‘the value of a dollar’.
Also notable is the Grayscale Bitcoin Trust (GBTC) will be “unlocking” close to 16,000 bitcoin on July 17. Events like these have happened before with Grayscale. You can read more about it here. It’s not certain what effect this will have on the price. I believe it will depend on where the price is on that date.
Technical Analysis:
We’re still watching Dominance and it’s been a good sign that we’ve been holding above 30k and Dominance has risen. If you’re an altcoin holder and haven’t sold all year, you truly have diamond hands. Not much has changed for Bitcoin though; we’re still ranging between 30 — 40k.
In the short term (1–3 months) we’ve seen strong resistance at 42k with it barely getting over 41k in the choppy waters of recent weeks. If we can see movement above 38k and again above 42k moving into the 45k range it would absolutely increase the bullish sentiment. On the Bearish side, it’s possible we break down below 30k and continue to see downward movement. If we see the price drop to 24–25k and then to 18–19k, we’d be in dangerous territory. Without strong recovery at those levels, we might see a longer bear market with a bleed out leading into the end of year.
In the longer term (6 month — 1 year) when you zoom out, the type of correction/crash and price action we’ve seen the past couple of months really isn’t far out of the norm for a crypto bull market.
I’ve compared charts from the beginning of each 4 year cycle from 2013, 2017, and this year. The lines all follow similar patterns.
I then compared July 2013 through EOY and again July 2017 through EOY.
If history repeats itself, we’ll see a sell off in mid-end of July and then a slow rise followed by a Parabolic move up, possibly going to 300k+.
Major Upcoming Developments:
Ethereum has the biggest development coming in the way of cheaper fees.
Bitcoin developers have drafted a proposal that would reduce bandwith on the network for node operators. The proposal is called “Erlay” and you can read about it here. This development could help further secure the network.
In the near future, as Bitcoin follows it’s 4 year cycle, fee’s paid to miners could get very high. This usually happens when there are too many transactions to process. The solution to this might be the lightning network. Which you can read about here. New BIP’s may also help with those high fees. The good news is that there are many other options and it’s increasingly easier to utilize those options.
In Conclusion:
HODL and BTFD.
Now accepting Donations
ETH — 0x20CC49B3A1A089435B60287C235CD9662498F79A
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.
