The headline, although clickbaity, is to the point. We will look at what we missed about Bitcoin’s price instead of analyzing the price movements in the hindsight. We will see how Bitcoin’s price is not correlated with the factors it is commonly attributed to.
To recap the rollercoaster that the Bitcoin price chart is, we went from over $19,000 in 2017 to below $3500 in 2019. Experts called the bottom and Bitcoin rallied to $14,000. It was a rally that generated more Telegram groups. These groups went cold when the price slid back below $10,000 and has been playing in a range near that. It dipped to $6800 before climbing above $10,000 again in the last six months.
Twitter was jolly with the prospects of a rally just before the halving. Tweets of “Bitcoin never below $10,000” were generously spread. No wonder it came as a surprise when it drilled below $6,000 again in March 2020.
The moment hodlnaut tweeted that we’d never see Bitcoin below $10,000 again, the bear market got reset.
— Loma (@LomahCrypto) March 11, 2020
Why does Bitcoin price fall (or rise)?
Everyone, especially on Crypto Twitter, is busy playing seer. It could be anything from institutional investors to market manipulators. I have to say that we just do not know. We do not know why Bitcoin’s price moves in the direction that no one ever expects it to.
But we do know one thing. It is NOT correlated to these factors for sure. So next time someone tells you Bitcoin price is going to rise because of one of these factors, send them this article.
The most important question to ask these ‘experts’ is about their own biases. When we analyze the price after a sharp rise or decline, the analysis is bound to be laced with what psychologists call ‘hindsight bias’. Post mortem may give us satisfaction and retweets but it is not something we should base our trades on.
Global Macro Environment
There are more crypto news websites than crypto traders. More Telegram groups than ‘analysts’. But the content machine needs to keep churning. So most news is about the global macro environment based on the premise that Bitcoin and cryptocurrencies, in general, are antifragile.
Yes, Bitcoin is antifragile but as of today, it is a blip on the global financial scene. The global macro environment doesn’t affect it as much as we’d like to believe. Historically, since the 2018 crash, Bitcoin and cryptocurrencies have gained popularity, been regulated in most countries, got more institutional money, saw influential names like NYSE jump onto the bandwagon. It has been a string of good news. Nothing has had a direct correlation to Bitcoin.
On the other hand, negative yields, trade war, and even Corona outbreak, all of which should have helped antifragile assets like Bitcoin, did not seem to correspond with Bitcoin demand.
I do believe Bitcoin is antifragile. But it is far from the tipping point that makes it significant enough for the world markets to pay attention.
Bitcoin’s fundamentals have been questioned time and again. The intrinsic value, environmental impact, speed, and security have been under the spotlight since serious money paid heed to its potential.
Bitcoin’s fundamentals have been improving throughout the bear market. Bitcoin’s hashrate is at an all-time high. Hashrate graph and price chart hardly correlate. Similarly, the market is mellow about the potential uses of the Lightning Network.
Another factor that does not correlate with price.
Adoption, combined with the increasing turmoil in the global markets, has been touted as the holy grail for the next bull run. But I believe using this word is a joke. There is near zero adoption. It was near zero even when the price peaked in 2018.
I like the allegory that Bitcoin’s network is like the dial-up internet connection right now. You do not measure internet penetration when the number would mean it is only being used by a fraction of 1%. There are 42 million Bitcoin wallets for a planet full of over 7.7 Billion folks. Adoption will matter when it gets to double digits at least.
My theory is that the market is so small, it is being run by whales or a few controlling funds who act against the market sentiments to ensure capitulation before they get into another bull run. The parabolic chart that we have all seen will still remain intact. But the price will not move when people like you or me expect it to.
While my theory may not be true, it is also a fact that none of these factors affect Bitcoin’s price as well. So next time you read about the threat of a nuclear war, know that you can spend your time better than reading about it.
Instead, send them this article and let them know.