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Crypto’s Bloody Bull: Dead or Down?

Crypto’s Bloody Bull: Dead or Down?

Chris Campbell

Posted July 08, 2024

Chris Campbell

THE CRYPTO MARKET IS DEAD. IT’S OVER. CRY HARDER!

That was the first thing I saw this morning - still rubbing the sleep out of my eyes - when I logged into my X account.

Oof.

If you listen to crypto influencers right now, you might be convinced crypto is indeed done… dead… stick a fork in it.

We have a simple cure for that (no affiliation):

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Markets, especially crypto markets, hate uncertainty. Right now, the market is hungry for certainty.

When it can’t find it, it’s like that 12-year-old who had his iPad taken away and destroyed his mom’s house. They just want to see the world burn.

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And yet…

For long-term investors, the dip doesn’t change anything.

The story hasn’t changed. From a political, technical, historical, and adoption perspective: crypto is stronger than ever.

James and I still maintain that we stand at the precipice of what could be the most monumental bull run in the history of crypto. 

An unemotional look at the markets suggests that the fear is overblown.

The problem: There’s a LOT of noise out there. It’s harder than ever to know what’s really going on.

Today, I’m going to run through the most common narratives. Also, I just uncovered one BIG signal that could indicate that the bottom is in or near. (One word: miners.)

But, as you’ll see, even that is noise.

Let’s start from the top.

Mt. Gox

A lot of people are attributing the crash to Mt. Gox.

This is mostly B.S.

I’m HAPPY this is happening for two reasons.

  1. People are getting their BTC back
  2. IT’S FINALLY OVER

If you don’t know the story…

Mt. Gox was an early Bitcoin exchange that got hacked. When it was hacked, Bitcoin was just $600. Now it’s worth almost 100x that.

The good news: Over 140,000 BTC is being returned, starting this week.

The other good news: It’s finally over.

The crypto markets have dealt with this Mt. Gox fear - MT. GOX WILL TANK THE MARKETS. IT’S OVER. CRY HARDER! - almost every year since 2014.

Here’s the thing:

The media and crypto influencers are scaring people saying all 141,000 BTC will be sold, but that's not true. Out of that 141,000 BTC, only 65,000 will go to individual investors. The rest has been bought by big companies. These companies are unlikely to sell immediately.

The remaining 65,000 BTC going to individuals is held by people who've had it for 13 years.

Sure, 65,000 BTC sounds like a lot, because it is a lot.

BUT

Consider also that Grayscale, owner of GBTC, sold a whopping 400,000 BTC after the ETF was approved and the market barely sneezed.

So something else is probably going on here.

Germany

In total, Germany has about 50,000 Bitcoin.

Yes, the German government has intent to sell. They’ve sent coins to Coinbase, Kraken, and Bitstamp. And then, they moved their coins out of exchanges back into their wallets.

Some thought this meant that Germany is now buying Bitcoin, regretting its decision to sell.

Unlikely.

The reality: the German government might have realized they were shooting themselves in the foot by selling on exchanges. When you’re selling that much, you get more bang for your buck on over-the-counter (OTC) trades.

We saw confirmation of this when Germany sent Bitcoin to Flowtrader - a market maker that buys/sells Bitcoin OTC. Germany might be adding to the downward pressure, but it’s not the whole story.

What else is affecting the price?

Basis Trades

We’ve also mentioned the “basis trade” in the past, where traders buy the Bitcoin ETF and short futures at the same time.

That way, they can profit from the price difference between the two.

Right now the price difference between the spot and futures is narrowing, making the trade less profitable. As a result, we’re seeing traders unwinding their positions - no surprise.

Looking at the data…

The number of open contracts - the total number of outstanding futures contracts that have not settled or closed out - dropped by about 40,000 Bitcoin last month.

On June 28, in fact, there was a HUGE drop of about 14,620 Bitcoin contracts.

Traders unwinding their positions adds fuel to the fire, especially when the sentiment is already negative.

BUT

That’s not even the whole story.

Finally, we turn to the miners.

Miners

You know the story…

During a halving, the number of new Bitcoins awarded to miners for successfully mining a block is cut in half.

That means that miners get a pay cut.

While revenue decreases, the costs associated with mining (electricity, hardware, maintenance, etc.) generally remain constant.Some miners have been able to make up the revenue by getting creative - like pivoting some of their resources to AI.

Less efficient and nimble miners usually find their operations unprofitable and are forced to shut down.

But, many of them got lucky - for a time.

Bitcoin had a surprise memecoin craze after the halving, supplementing some of that lost revenue. But right now, that money - along with the meme hype - is drying up.

And, right on cue, miners are dropping like flies.

Just last week, we saw a 5% drop in mining efficiency, signaling that miners are dropping off the network. This signals that more miners are forced to liquidate their Bitcoin holdings, causing more selling pressure.

Here’s where things get interesting:

Bottom is in?

Right now, on average, it currently costs about $56,000 to mine one Bitcoin.

Fun fact: Over the last five years, the price of Bitcoin has never dropped below the cost of the electricity needed to mine it.

It's been like a “hidden” floor for Bitcoin.

Of course, this isn’t perfect and far from foolproof.

Mining Bitcoin isn't just about electricity. Miners need to buy expensive computers, pay rent for their operations, and cover other business costs.

But it’s interesting to note that the price - even after the last halving - never went below the cost to produce a Bitcoin.

Something else to chew on:

The Bitcoin halving just happened about 80 days ago. In previous cycles, the total crypto market cap didn’t hit its all-time high until at least 200 days after the halving. And, of course, it happened in fits and starts.

This only matters to us because the ENTIRE crypto market is still tied to Bitcoin.

That won’t always be the case.

In fact, we might see some coins decouple from Bitcoin soon.

Here’s why: Ethereum.

Ethereum Leads the Way

Consider:

No country or company has a bunch of Ethereum to dump right now. There are no miners who need to sell Ethereum to cover electricity costs.

Ethereum supply on exchanges has been at an 8-year low. Only 10% of the supply is on exchanges. (This signals that there’s lower intent to sell.)

Ethereum is the go-to tokenization chain for institutions…

AND

With the Ethereum ETF right around the corner, ETH looks better than ever.

Of course, James and I are more interested in the coins that will outperform Ethereum.

In fact, because the market’s down, our Early Stage Crypto Investor members are going to receive special double-down recommendations this Friday.

If you’re an ESC member, keep your eyes peeled.

Tomorrow, we’re going to confront a bigger issue in crypto: hackers.

I’ll tell you all about the 14 year old who stole MILLIONS of crypto… how he did it… and how to make sure it NEVER happens to you.

(With a few simple tricks.)

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