Where is Bitcoin Headed to Next?

  • Retail flows last week saw accumulation of Bitcoin that presaged this week’s sharp recovery in the cryptocurrency 
  • Medium term macro factors still favor a bullish take on Bitcoin 
 
There’s a saying on Wall Street that if you want to know what happens next, follow the trail of the money.
 
It’s why there are some shops which specialize almost entirely on money flows, including retail flows into stocks and options, as well as larger flows handled by the low-profile but influential market makers that dominate trading on the world’s biggest stock exchanges.
 
So just before Bitcoin rallied yesterday, some corners of the cryptocurrency world had already noted significant capital flows pouring into the system.
 
And just as money flows can be traced in the traditional financial system, the transparency of the blockchain has meant that large flows headed to buy Bitcoin on exchanges could also be sensed.
 
These flows are likely to be retail however, the same way that retail investors stocked up on more speculative segments of the market earlier this week, including GameStop (+26.94%) (yes, that’s still happening) and Tesla.
 
Considering that Bitcoin held up relatively well during the rout in tech stocks, which also saw Tesla lose some US$150 billion in market cap, Bitcoin’s recovery was in line with a broader risk-on sentiment.
 
Bitcoin prices continue to be buoyed by news that institutional adoption is accelerating and that big financial players are jostling to gain exposure to the cryptocurrency.
 
Another view of course is that Bitcoin is just another example of a stimulus-fueled bubble destined to end in tears similar to what happened between 2017 to 2018.
 
Bitcoin and tech stocks are becoming increasingly correlated as well and it doesn’t help that the likes of MicroStrategy (+14.71%), Square (+11.50%) and now Chinese photo-editing app Meitu (-1.10%) have all thrown in their lot with Bitcoin and in the case of Meitu, Ether as well.
 
Significant flows into cryptocurrency exchanges this past week have been noted, with much of the strongest buying action occurring before Bitcoin recovered above US$50,000.
 
And while there is growing evidence that institutional investors are seriously considering cryptocurrencies or are already holding them, the flows of the past week have been primarily retail, which some might associate with being volatile, but others will note as providing a more steady hand, or “diamond hands” as they’ve come to be known.
 
Retail investors poured some US$6 billion into stocks two weeks earlier, which is higher than the typical flow of US$4.8 million, taking the opportunity to “buy the dip,” similar to what has happened for Bitcoin.
 
And unlike institutional investors who may be more judicious in their profit-taking, retail investors have shown that they have “diamond hands” – case in point, GameStop is far from dead. 
 
 

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

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