Bitcoin: Short + Long Term View (Patreon)

Short term trading view

After breaking out of the bull flag (or pennant) pattern mid-April, Bitcoin failed to hold above 30k for long and it is consolidating between 27000-29000 once again. The price action is not encouraging, but it hasn't hit my stop loss either. Waiting to see what happens.

Longer term view

A couple longer term trends worth watching and its implication

Trend 1: Volatility is declining, hence Sharpe is increasing

The chart above compares the volatility of BTC (white) vs Amazon (blue) vs Gold (orange). All three are technologies. Gold is a extremely old "technology", Amazon is a much more recent technology, and BTC/Crypto is the newest on the block. The key similarity between technology is that there is a lot of volatility at the early part of the technical adoption due to the uncertainty of the future. But as the tech matures, naturally volatility declines, which also coincided with appreciation in price as user adoption improves too. The sharp drop in volatility in BTC to a level that’s almost similar to Amazon bodes well for overall adoption of the asset as it finally becomes less “volatile”. The reduced volatility also translates into higher Sharpe ratios for most BTC strategies with a long bias.

Trend 2: Price is determined by supply/demand. BTC supply increase is declining sharply

As supply increase slows down, BTC prices have more room to run as there will be less selling pressure from miners . By 2025, BTC will have an annual supply increase of less than 1%. Just to compare, Gold has a naturally supply increase of around 2% annually. 

ETH has even better supply/demand profile as ETH supply is actually decreasing due to usage. Supply is reducing at about 1%/year. 

BTC and ETH's supplies grow at less than 1%/year. But it is important to consider the supply growth of other cryptos too. Because they will take away some of the capital that would have gone into BTC/ETH. So if every few years, there is a new successful crypto that absorbs a lot capital, then BTC and ETH's low supply growth is less important. In the recent bull market, AVAX, SOL and BNB did that. But during the bear market, it seems only BTC and ETH remain relevant for institutional investors.