Bitcoin's "Perfect Storm" Explained by Dave Weisberger
The short-term bullish momentum of Bitcoin's price may be waning, but on longer timeframes, there is a strong likelihood that the cryptocurrency will continue its current rally. This perspective was shared by Dave Weisberger, co-founder and co-CEO of CoinRoutes, a provider of liquidity and algorithmic trading tools for the crypto market. Bitcoin's "Perfect Storm" Explained by Dave Weisberger.
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As of now, Bitcoin is trading at $34,200, experiencing a 2% loss in the past 24 hours. With the bullish momentum appearing to wane, analysts anticipate a potential return to the critical support level of approximately $33,000. It is crucial for BTC bulls that this support area remains intact to avoid a more significant correction.
Bitcoin Becoming Digital Gold, Low Selling, And The Potential For 20x Profits
Given the current macroeconomic landscape, Bitcoin has gained significance as a global financial asset, a store-of-value, and even referred to as "gold 2.0" by CoinRoutes' co-founder. Weisberger has shared his optimistic perspective on cryptocurrency and the influence of the spot market on the ongoing rally. In our discussion, Weisberger shared insights on the Israel conflict, the current market structure, and the factors that are contributing to a perfect storm for BTC. Here's what he had to say:
Q: With a delicate situation in Israel, high inflation, and talks about a potential economic recession, How is the current macroeconomic landscape impacting the Bitcoin price?
A: I believe the most straightforward way to approach this is by understanding the famous quote from Ram Emanuel: "When you're in the government, never let a good emergency go to waste." In the current macro environment, it seems that the Federal Reserve and the Treasury have limited options. They essentially have two choices. The first option is to pursue aggressive deregulation, implement significant tax cuts, and hope for economic growth to solve the problems. The second option is to adopt the Japanese approach of managing the yield curve, allowing the government to function while postponing the issues for future generations. It's worth noting that although some candidates may talk about pursuing the first option, they are not currently in power and are unlikely to win. Even if they were to win, they would likely face challenges in obtaining the necessary congressional support for massive deregulation. This would be required to fully embrace AI, digital assets, and other new technologies that could potentially drive economic growth while reducing government spending. Unfortunately, this scenario seems highly improbable. Consequently, we find ourselves in a situation where the current administration continues to increase spending. As James Lavish quotes, there is approximately $1.6 trillion in new debt, resulting in a yearly deficit of $2 trillion. Additionally, the debt service is approaching a trillion dollars, even with interest rates below 5%. If the yield curve were to return to normal, with a 2% upward slope, reaching 7%, the debt service alone would exceed tax receipts. This is a concerning situation, especially considering that even a cut in the defense department's budget would not be sufficient to cover the debt service.
The current state of the economy suggests that we are in a debt spiral with no escape. Despite the uncertainty surrounding interest rates, Bitcoin prices are responsive to monetary aggregates and debt. Bitcoin is slowly becoming the digital equivalent of gold, with a potential price that could be 15 to 20 times higher than its current value. The recent endorsements of Bitcoin by respected bond analysts like Larry Fink, Mohamed El-Erian, and Stanley Druckenmiller indicate a shift in opinion towards Bitcoin as a hedge against a looming fiscal disaster. However, it is worth noting that entering a two-front war, as demonstrated throughout history, is not conducive to sound fiscal policy.
Q: From a broader perspective, how do the dynamics between spot buying and derivatives trading impact the overall health and sustainability of a potential crypto bull run? Do you think BTC is poised for further profits?
A: CoinRoutes has experienced a significant increase in client volumes, with October seeing almost double the volume compared to September. This surge in interest demonstrates the strong liquidity in the crypto markets. In the world of trading, there is a well-known saying that order flow begets order flow, and liquidity begets liquidity. This holds true for the crypto markets, which function exceptionally well.
However, it is important to note that sometimes the volatility in the crypto markets arises due to excessive speculation around certain aspects. For instance, perpetual swaps provide a more efficient means of leveraging compared to option markets. In the equities market, options are commonly used for leverage by US investors, but they tend to be more expensive than perpetual swaps in the crypto market. Consequently, a small percentage of market participants engage in speculative trading using perpetual swaps, which can lead to significant price movements.
An interesting example of this occurred recently when there was a fake news event surrounding the Bitcoin ETF. In a matter of moments, the news caused Bitcoin's price to jump from $28,000 to $31,000 in the perpetual swaps markets. While the spot market also experienced some movement, the majority of the trading activity was driven by short-sellers who realized the potential risks if the news turned out to be true. As a result, spot buying intensified, pushing the price even higher. Currently, the price stands at a level approximately 25% above its pre-fake news level.
(…) This situation indicates that the market movement was driven by spot buying rather than derivative buying. In cases where derivative buying or selling influences the market, there are usually noticeable gaps where the perpetual swap becomes either too expensive or significantly cheaper. However, during the rapid five-minute decline from $29,000 to $26,000 a few months ago, the prices of perpetual swaps were consistently over a thousand dollars per Bitcoin lower than the bid on spot markets. This clearly indicated a single de-leveraging event. On the other hand, what occurred last Monday was clearly led by spot buying, as the premium remained unchanged throughout. The spot market actually influenced the derivative markets to move higher. This suggests that there were indeed spot buyers involved.
This situation aligns with what I have been observing for the past eight months - a patient accumulation of spot positions. There are two ways to observe this trend. Firstly, if we examine the events of the past few weeks, we can see that speculators were forced out of the market during the rally, as there were no sellers present. This can be quite alarming for those who had short positions, as it creates the conditions for what some may refer to as a "God candle". Secondly, during the seven-month period, there was a lack of volatility, leading many to leverage their positions on the short side. This is why the recent market movement was so significant and powerful.
In my opinion, the most bullish action Bitcoin can take right now is to stabilize at its current level for a few more weeks (…). During the past seven months, we have experienced a period of low volatility. This encouraged many traders to take on short positions, which ultimately contributed to the strength of the recent market movement.
Q: You mentioned this earlier in your analysis, but can you tell us why Bitcoin entered a “Perfect Storm” scenario?
A:I wouldn't describe it as a perfect storm because US regulators are still attempting to restrict the growth of cryptocurrencies, as they view them more as digital assets rather than true cryptocurrencies. Their goal is to impede its progress and prevent it from surpassing traditional financial institutions.
The truth is, the US possesses the world's leading capital markets, with 50% of investible assets located here, despite only representing around 4% of the global population. This is largely due to the efficiency of the existing analog financial system. Therefore, established financial institutions would prefer to delay the digitalization of finance or incorporate it into their own operations. This is the one imperfect aspect of the situation. However, the perfect storm is occurring overseas. Recently, the UK announced its ambition to become the global hub for digital finance, aiming to replicate the conditions that made London a major financial center in the past.
London's rise as a financial center was largely due to the Eurodollar market, which was driven out of the US by regulatory measures and subsequently established itself in London. While history may not always repeat itself, we can observe certain patterns. Setting aside the issue of regulation, the perfect storm is primarily characterized by growing deficits and widespread monetary debasement on a global scale.
Throughout financial history, fiat currencies have consistently experienced debasement. This is due to the fact that governments, equipped with the power to create money out of thin air, tend to exploit this ability until the market intervenes. The current fiat experiment, which began with the Bretton Woods system in 1971, is showing signs of nearing its end. While it is possible to prolong this system for another 10, 15, or even 20 years, it is important to consider the consequences.
In the midst of an increasingly global digital society, there is a growing need for a reliable store of value. While people prefer spending in traditional currencies like the dollar, they also desire a means of preserving their wealth. This is where stable coins, such as Tether, become significant. However, when it comes to saving, Bitcoin offers a solution. It serves as a valuable asset for long-term preservation, rather than a currency for everyday transactions. Therefore, it doesn't make sense for Bitcoin holders to use it for small purchases like a cup of coffee. The intention behind holding Bitcoin is to benefit from its potential appreciation in value. Using it for everyday expenses would be impractical and costly.
Bitcoin functions as a savings vehicle, while stable coins serve as a means of spending. Additionally, Ethereum acts as a technological platform that facilitates the transition towards a more digital world. These developments align with the prevailing macro trends in the economy, which include concerns about monetary debasement and the desire to escape the cycle of debt. Moreover, the presence of geopolitical instability further reinforces the likelihood of a debt spiral materializing.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.