‘Bitcoin bottom’ is something that has seen debate raging in CFD trading circles over the past year and New York-based Delphi Digital thinks it might have already happened. According to the research and consulting boutique based in New York, there weren’t additional sellers coming online at the end of this year’s first quarter, indicating that Bitcoin was now in a holding position for many investors.
Specialists in the digital asset market, Delphi Digital predicted this scenario in December last year and claims that its forecast has now come true. “It’s clear that there’s an increasingly smaller amount of coins that are being actively traded and sold, implying the incremental demand necessary for price to bottom also decreases”, an update to clients said in mid-March. The company also added that there seemed to be a shift in Bitcoin ownership mentality which was favoring long term holdings.
Co-founder and Principal at Delphi Digital, Yan Liberman, quoted research that holders of Bitcoin who have not sold in the last three months are not expected to start doing so in Q2. According to Liberman, there are three main factors that will influence the likely sale of Bitcoin by long-term holders in the coming months, unless all bets are off due to a successful hack attack.
The first influencing factor would be a significant fall in price which led investors to think that they could sell and then buy back at a lower cost in the future. The second would be a price fall so drastic that a belief that Bitcoin was going to fail would lead to investment salvage damage limitation, and the third scenario would occur if a significant run-up in price came in the next quarter which led to investors cashing in to take profits.
Liberman believes that the first and second options are very unlikely but admits that the third is a difficult one to forecast due to each individual investor having their own view of breakeven prices. Reviewing his data, Liberman said: “The 1-2 year holder group implies that you purchased between March 27th, 2017 and March 27, 2018. We actually have more granular data, and the mix of 12-18 month holders is larger than the 18-24 months.” Liberman then went on to say: “This implies that more of the 1-2 year holders purchased at a higher price point, thus their break-even is higher, and they’re less likely to sell for a small price increase.”
2-3 year holders
Perhaps unsurprisingly due to the volatile nature of crypto, 2-3 year holders actually make up a small number of overall Bitcoin owners. Liberman suggested that their behavior is colored by the fact that they have purchased Bitcoin at a significant discount to prices as they currently stand, so it would be hard to predict what might cause them to decide to sell over the coming months. However, Delphi Digital believes that this group will become easier to read in June when 1-2 year owners start to become 2-3 year holders themselves.
The 2020 halvening
The halvening might sound like something from Game of Thrones, but it’s a Bitcoin event that has been long planned and is due to happen in 2020. Why it concerns the crypto community is because at that time, the Bitcoin block mining reward will drop down from 12.5 to 6.25 bitcoins. Although it is expected that this will be the last reward halving to have a significant input on pricing values, that doesn’t detract from how it might actually affect Bitcoin next year.
Last month, Delphi Digital said: “The upcoming halvening in May 2020 also functions as an intermediate catalyst for a reduction in selling pressure. For reference, prices bottomed 542 days before the halvening in 2016. As of March 15th, we’re 435 days away from the next expected halvening.” Elsewhere in its mid-March report, the company suggested that large investments from institutions coming into the market will have the effect of suppressing the volatility of crypto assets and this will result in a boost for Bitcoin as it becomes something of a ‘safe haven’ long-term hold.
In effect, the way that investors themselves choose to view crypto assets might be the determining factor as to how they might shift from being a peer-to-peer currency concept to becoming what might be termed ‘digital gold’. In this way, Bitcoin and other established digital coins could in the future be a stable and low-risk investment that actually drew in long term institutional funds and risk-averse DIY savers alike.
In the short term, Liberman doesn’t believe the general narrative will change much due to the Lightning Network, which will enable peer to peer currency use on a larger scale. “It’s functional for different people in different ways. Those that can afford to treat it as a long term SoV [Store of Value] type of investment (developing nations) are doing that. At the same time, those individuals that don’t have the ability to save are also able to use it as a potential way to mitigate foreign currency risk (temporarily), a payments processor in areas that are unbanked or censored by the nation state, and as a method of transferring wealth when attempting to relocate”, he explained.
For CFD traders who use crypto markets and assets, the ideas of lower volatility and long-term investments might not seem too appealing. However, any moves that enable a wider use of digital coins means that transaction volumes increase, and this leads the way to greater trading opportunities. Within the crypto sector itself, it is also likely that as the bigger more established coins become more widely used and trusted, there will always be room for new and innovative concepts that try to become the new disruptors and expand the paradigm even further, and that will always mean volatility plays a big part in the overall scheme of things.