“I’m not necessarily expecting any sort of explosive recovery anytime soon, but I do think that any interested people might want to look into this space because I think this is a time to consider starting laying capital in or to start maybe building up a position or at least studying it to see if it’s something you eventually want to go into. I’m pretty optimistic long term about where we are now, while still cautioning that in the next three to six months, anything can really go when you’re in this type of weak economic environment with low liquidity.”
On Wednesday, Bitcoin, the world’s largest cryptocurrency, peaked at $24,199, its highest price since June 12. That was a few hours before news broke that Tesla, Elon Musk’s electric vehicle company, had sold 75% of its Bitcoin holdings. Tesla said it bought traditional currency with a $936 million profit from the sale. As expected, the market didn’t take too well to the news. As of press time, the crypto asset has taken a plunge below $23,000 and is now trading at $22,849.
The good news here is that the news from Tesla didn’t affect the market as much as we all thought it would. Only a small number of weak hands sold their Bitcoin, which is funny because the Tesla sale probably occurred a while back, but it was only revealed during an earnings call on Wednesday. Good news about the sale is that it has finally occurred and didn’t bring the market to unimaginable lows. So investors would stop worrying about Tesla selling its Bitcoin because it already hasn’t and we are still here. Lastly, the sale also makes a good case for Bitcoin’s liquidity. The market sold almost $1 billion worth of Bitcoin, ending the concerns that the cryptocurrency industry does not have adequate liquidity, especially for big corporations like Tesla.
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While the market continues to grapple with the latest surprise from the world’s richest man, Lyn Alden, a brilliant macro investor and Bitcoin investor, recently gave her latest outlook on Bitcoin. Alden, who is the founder of Lyn Alden investment strategy, believes all investors, whether they’ve bought Bitcoin or not, should see this period as an opportunity to do so or at least learn more about it. We will now take you to Lynn Alden’s interview as she speaks about the Terra implosion and the recent barrage of bankruptcies among crypto firms.
“I think the last $10,000 moves were somewhat surprising to me. I think that’s because they were below my base case. I would not have been surprised if he went over 30%. I think going below 20% was a deeper capitulation than I would have guessed several months ago. You know, for people who’ve been following my work generally, Bitcoin and cryptos do well in rising PMI environments, so purchasing managers index economic acceleration. They usually do well in that kind of environment. And then they usually do poorly or sideways in declining PMI environments, which are economic attraction types of environments, and those are generally these three-year cycles that the global economy goes through. So I had been getting cautious in the tactical sense about the fact that we’re going through a declining PMI environment and then that, therefore, that can put a lot of pressure on Bitcoin, despite the fact that I would say so structurally long-term bullish on it but then being aware of that kind of downside. And then, in particular, when Luna started buying Bitcoin, I started to kind of write about a potential scenario where they implode and they end up having to sell their Bitcoin into a weak market capitulation.
That’s unfortunately what we saw in the deeper leg that I didn’t necessarily expect, which was the implosion of three hours of capital. So basically, there’s more contagion in the space. There’s really kind of follow-on. It was kind of the second part of that Luna collapse, right? So, for example, there’s a proprietary trading company with three hours of capital that had over $10 billion in capital at its peak, and they were heavily impaired by the Luna implosion. They also had leverage from multiple different shops, which is pretty opaque leverage, and they used Bitcoin as collateral mostly to trade altcoins. They’re not like making leveraged bets on Bitcoin. But they’re using Bitcoin as collateral to go out and buy other things, and they, you know, they basically ran into massive issues and got liquidated. So there’s all this kind of forced selling of Bitcoin, a total capitulation in cryptos. So a number of companies went bankrupt or near bankruptcy and had all sorts of liquidity crates. You have a lot of entities that are busy forcing sales. So this is the one. Luna was something that I wrote about and expected and cautioned about, whereas something more opaque, like three hours of capital, is kind of the second leg to that. It’s just that one’s harder to predict.
So I think the environment we’re in now is that we’ve had a pretty deep capitulation. It’s always hard to say if you’re at the ultimate bottom or not, but this does look a lot like the late 2018 capitulation where Bitcoin, for a while, was kind of stabilizing around $6,000, and then it just got cut in half, all the way down to almost $3,000 when you had the fed tightening and you had problems in credit markets and you had this kind of contagion. So I think that we’ve gone through a similar capitulation now where, you know, Bitcoin looked like it was trying to bottom around $30,000. It’s kind of that level environment and then out of nowhere it just completely capitulated down to sub $20,000. So I know that, by most metrics, it’s in a pretty deep value zone right now.
So, it’s below the average on a chain-cost basis. It touched below the 200-week moving average, which almost never does. We’ve had a lot of force selling. I mean, generally you want to be a buyer doing the selling and a trimmer when everyone’s euphoric. So I think that, if I were to look back three to five years from now, I would not be surprised. I’d be mostly confident that this is probably going to look like a pretty significant buying opportunity in Bitcoin. But I do think that people have to be aware that it might not be over. There could be more pain ahead. I think the macro situation is still kind of going to be struggling for a number of months here.
So I’m not necessarily expecting any sort of explosive recovery anytime soon. But I do think that any interested people might want to look into the space, because I think this is a time to consider starting laying capital in or to start maybe building up a position or at least study it to see if it’s something you eventually want to want to go into because, I first bought Bitcoin in April 2020. So we were just coming out of that whole covert crash and that was the last time — that was the fourth time ever that Bitcoin was below its on-chain cost basis — and now it’s the fifth time. So, in many ways, it looks like that earlier type of environment. So I’m pretty optimistic long term about where we are now, while still cautioning that in the next three to six months, anything can really go when you’re in this type of weak economic environment with low liquidity.”
In her interview, Alden also gives her estimate of how long the bear market will last. She explains that since we didn’t get a blow off top, she didn’t expect the capitulation to the sub-20s. When Alden considers the current market conditions and the general macroeconomic environment, she does not see Bitcoin improving much within the next six to eight months. Regardless, the macro investor says she’s buying more Bitcoin and working to convince others to do the same. Let’s get back to the interview.
“Bitcoin had less of a blow off the top in the cycle. Most of the blow off topics and other things like Dogecoin or some of these, like either meme coins or some of the smart contract platforms, Bitcoin itself had more of a rolling top. So, I was kind of, as a base case, maybe expecting it not to capitulate as much as it did in some of its prior cycles. That was before the whole three-hour capital implosion. It was kind of the second leg of that divestiture. So basically, given how low sentiment was and given what was happening with inflation in a number of markets, I was kind of expecting that that upper 20s position might hold. The way I was analysing for my client was saying that I think this is a reasonable value zone. It’s not a deep value zone. It’s not a capitulation. I kind of kept looking back at that 2018 chart and being like, “You could have a pretty violent end.” I wasn’t ruling out this kind of final capitulation type of phase, but wasn’t necessarily expecting it either, but now that we’ve gotten it, I am kind of more confident than I was a number of months ago about kind of recommending that people at least consider looking into layering in or researching the protocol just to see if it’s something that they’re interested in. Basically, I think that we now have a pretty severe washout in terms of liquidated leverage for sellers. This is the time where I don’t mind, you know, picking some up and kind of being on the other side of that trade.
So I think the next zero to twelve months is still very difficult to call because I think we’re currently in an economic decelerating environment. Right now, historically, Bitcoin tends to bottom before PMI bottoms. So this might have been roughly the bottom. Then you still have economic deceleration, because basically what you start to do is to price in more devices, central bank policy, more liquidity, things like that. So basically, the price bottom of such a volatile asset can pre-see the bottom of the current economic situation, but that doesn’t mean it always has to work like that. But it’s something to keep in mind. So, I think the next 0 to 6, to 12 months is still very uncertain, where you could chop along, you could rise moderately, you could maybe see a low or low, but maybe not as explosive as we’ve already seen. And then I think that when you have a rising PMI environment looking out, say in the next six to 24 months or six to 36 months. I think that’s where I’d be more structurally bullish. So, my highest conviction view is in that kind of multi-year time frame, whereas I think now is kind of a more interesting phase for watching it maybe acculating while still being cautious and not being shocked. If we do see sideways action or maybe lower lows.”
There are a few more details on Tesla’s Bitcoin sale. According to Tesla CFO Zachary Kirkhorn, the company sold 75% of its Bitcoin holdings for a realized gain. This means they sold at a higher price than what they originally paid for the coins. However, Tesla also revealed that the other 25% it still owns is now worth much less than what it paid for it. Whatever they gained during the sale does not cover the decline in price for the rest of the coins. Kirkhorn said that the net result was a $106 million cost to tesla’s bottom line. Elon Musk has also revealed that the company is open to getting more Bitcoin later on when the market improves. The billionaire investors said the decision to sell their Bitcoin was not due to the decline in the cryptocurrency market. But because of China’s strict covet lockdowns.
The sale should not be taken as some sort of verdict on Bitcoin. It’s just that we were concerned about the overall liquidity of the company given shutdowns in China must be revealed on Wednesday. Due to Shanghai’s two-month long state of lockdown, At Tesla’s Shane High gig factory, workers were told to stay home and the factory was briefly closed. Even when workers were forced to stay home and live on site, the car makers still struggled with both parts shortages and shipping disruptions. Earlier this month, the company reported its first ever decline in quarterly vehicle sales. It also attributed the decline in sales to the situation in Shanghai. Musk has also revealed that Tesla owns Dogecoin. The billionaire has always been vocal about his support for the popular Meme coin, but for the first time, he revealed on Wednesday that Tesla has Dogecoin and that none of it has been sold.
[This article is a transcription of a video made by Savvy Finance]
[Original video: https://youtu.be/dUKK0If41ko]