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TRADE IDEA: Is Bitcoin Headed for Another Crypto Crash or a Come Up?

By
Horizons ETFs

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:

Technical Indicators

Aug 03, 2022 08:34PM GMT

Name Value Action
RSI(14) 36.175 Sell
STOCH(9,6) 50.605 Neutral
STOCHRSI(14) 83.312 Overbought
MACD(12,26) -5845.000 Sell
ADX(14) 27.244 Sell
Williams %R -55.812 Sell
CCI(14) 46.2181 Neutral
ATR(14) 4272.7563 Less Volatility
Highs/Lows(14) -401.489 Sell
Ultimate Oscillator 54.224 Buy
ROC -38.256 Sell
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).

As at July 31, 2022, BITI has returned 42.01% on a year-to-date basis in 2022.

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).

Learn more about Horizons ETFs’ family of BetaPro ETFs

Horizons ETFs

Horizons ETFs Management (Canada) Inc.

Horizons ETFs Management (Canada) Inc. is an innovative financial services company and offers one of the largest suites of exchange traded funds in Canada. The Horizons ETFs product family includes a broadly diversified range of solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions.

Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the “Horizons Exchange Traded Products”). The Horizons Exchange Traded Products are not guaranteed, their value changes frequently and past performance may not be repeated. Certain ETFs may have exposure to leveraged investment techniques that magnify gains and losses and which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the prospectus. The prospectus contains important detailed information about the ETF. Please read the relevant prospectus before investing.

The Horizons Exchange Traded Products include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in shares of a BetaPro Product decreases in value. BetaPro Bitcoin ETF (“HBIT”), and BetaPro Inverse Bitcoin ETF (“BITI”), which are a 1X ETF, and an up to -1X ETF, respectively, as described in the prospectus, are speculative investment tools that are not conventional investments. Their Target, an index which replicates exposure to rolling Bitcoin Futures and not the spot price of Bitcoin, is highly volatile. As a result, neither ETF is intended as a stand-alone investment. The returns of BITI over periods longer than one day will, under most market conditions, be in the opposite direction from the performance of its Underlying Index for the same period, and the returns of BITI can, based on historical returns, generally be expected to be substantially similar to the inverse performance of its Underlying Index for the same period, when BITI’s exposure is at -100% of the Underlying Index throughout the period. However, the deviation of returns of BITI from the inverse performance of its Underlying Index can be expected to become more pronounced as the volatility of the Underlying Index, and/or the period of time, increases. There are inherent risks associated with products linked to crypto-assets, including Bitcoin Futures. While Bitcoin Futures are traded on a regulated exchange and cleared by regulated central counterparties, direct or indirect exposure to the high level of risk of Bitcoin Futures will not be suitable for all types of investors. An investment in any of the BetaPro Products is not intended as a complete investment program and is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies. Please read the full risk disclosure in the prospectus before investing.

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.

This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor.

All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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