Since its introduction in 2007, Bitcoin – the world’s first cryptocurrency – has catapulted thousands of its traders into millionaire status.
According to BitInfoCharts, there are currently more than 71,000 Bitcoin wallets with more than $1,000,000 USD worth of the cryptocurrency.
So far, however, 2022 has not been a good year for Bitcoin and its investors. Year-to-date, the cry ptocurrency is down approximately -50%, with nearly a 900 billion dollar USD equivalent loss in its market capitalization. After hitting a peak of $68,992 on November 10, 2021, the price of Bitcoin as at July 29 2022 is just $23,951.94.
Bitcoin Price: YTD 2022
Source: Bloomberg, as at July 31, 2022
Is this the end of the crypto crash or is it just the beginning? Let’s take a look at a few indicators that could impact the price of Bitcoin in the near and mid-term period:
1. Inflation Pressures and Interest Rates
The current inflationary environment has been one of the largest macroeconomic drivers of market and asset class uncertainty this year. Historically, Bitcoin speculators have touted the digital currency as an “inflation hedge” similar to gold, due to its finite supply and non-correlation to other asset classes and currencies.
But with the U.S. Federal Reserve and other central banks raising interest rates in an effort to tame inflation, we are beginning to see faults in that thesis as Bitcoin’s value has dropped throughout the period.
Other inflation hedges, like gold and commodities, typically function as an intrinsic store of value over time, with consumption-based purposes that create underlying demand. Currently, Bitcoin usage is more limited, with a small proportion of businesses willing to transact in the digital currency. Its volatility was also calculated as four-times that of gold by JP Morgan Chase & Co strategists.
Price Volatility of Bitcoin, Gold and the S&P 500
Correlation BTC vs S&P 500
With inflation continuing to run rampant, central banks signaling more interest rate hikes to come and a possible recession that could further impact equity markets on the horizon, investors may want to consider whether Bitcoin’s historical performance and correlation to date really positions it to excel in such a marketplace.
Source: Bloomberg, as at July 31, 2022
2. “Whales” and Recent Buy/Sell News
From Elon Musk to El Salvador, Bitcoin has been championed by “Whales”: a term that refers to individuals or entities that own a large amount of cryptocurrency. Historically, news of trades made by these “Whales” have been linked to Bitcoin price impacts. For instance, in February 2021, news that Tesla had purchased $1.5 billion USD of Bitcoin caused the price of Bitcoin to jump 17%.
In July 2022 however, Tesla revealed that it had sold 75% of its Bitcoin – approximately $2 billion USD. Earlier in the year, Tesla also announced it would no longer accept Bitcoin as payment for its cars.
While El Salvador has not sold its Bitcoin holdings since adopting it as a second form of legal tender in October 2021, a new report from Moody’s Investors Service highlights the unrealized losses sustained to date and strain on the country’s liquidity means that the likelihood of other countries following El Salvador is low.
In addition, Bloomberg also reported in July that on-chain activity had dropped by 13% in July from the November 2021 highs, suggesting many Bitcoin traders are withdrawing their funds from crypto exchanges, amid a backdrop of cryptocurrency exchanges and hedge fund closures.
3. Technical and Sentiment Indicators
Other technical indicators could provide investors with some insight on how to approach the
“fair value” of Bitcoin at its current pricing, which can be difficult due to the recency and non-tangibility of the asset class.
For instance, as at August 3, 2022, on a one week basis, a number of moving average indicators on tradingview.com are showing a “STRONG SELL” signal on Bitcoin:
Similarly, on Investing.com, a number of other technical indicators are flashing “STRONG SELL” on Bitcoin:
Aug 03, 2022 08:34PM GMT
|Bull/Bear Power (13)||-4524.732||Sell|
Buy: 1 Sell: 7 Neutral: 2
Summary: STRONG SELL
As well, each quarter, Horizons ETFs conducts sentiment surveys with Canadian advisors and investors. Heading into Q3 2022, bullish sentiment on Bitcoin dropped considerably among both groups when compared to Q2 2022, suggesting that there could be less optimism for the digital currency over the next several months:
How Can You Trade Both Sides of the Bitcoin Opportunity?
Whether you think Bitcoin might continue to run up or has already hit a top, high conviction short-term traders might want to consider long and short ETFs. Bitcoin ETFs offer the ability to take long and short positions on the price of Bitcoin, without the need to open up a cryptocurrency wallet and purchase through a cryptocurrency exchange.
In Canada, Horizons ETFs is the only provider of leveraged and inverse leveraged ETFs, including the only inverse Bitcoin ETF, which trades on the Toronto Stock Exchange (“TSX”).
For high conviction short-term traders that think Bitcoin has hit a top and could face a decline soon, they could consider the BetaPro Inverse Bitcoin ETF (BITI: TSX), which is designed to provide daily investment results that correspond to up to one times (100%) the inverse (opposite) of the daily performance of the Horizons Bitcoin Front Month Rolling Futures Index (Excess Return).
For traders that think Bitcoin is poised for a rebound, they could consider the BetaPro Bitcoin ETF (HBIT: TSX), which replicates the returns generated over time through exposure to long notional investments in Bitcoin Futures. The underlying index of HBIT is the Horizons Bitcoin Front Month Rolling Futures Index (Excess Return).