Will Bitcoin prices be higher in 90 days (Jan 2022)?

My Courageous Call:

No

Prediction Date: 01/25/2022

Deadline Date: 04/25/2022

Crypto prices have fallen spectacularly in the last three months, with Bitcoin falling ~45% from ~69k to 37k as of this writing.

Source: TradingView

Cryptocurrencies have fallen in tandem with equities over the same time frame, particularly in the last two weeks, and driven primarily by high inflation and a strong US economy that has led to increased expectations that the Fed will tighten aggressively in 2022, including ending QE and raising rates multiple times.

Source: Trading View

I mentioned a week ago or so that I think equities will be up in 90 days. However, I don’t think the same is true of cryptocurrencies. The thesis behind equities is that a) there is ultimately a Fed put willing to backstop how much equities will fall and b) the underlying US economy is still strong, leading to strong fundamentals that can still prop up a high equities valuation.

Crypto on the other hand doesn’t have the same underlying drivers. Crypto benefits primarily from excess liquidity (i.e. cash) in the system, and with the Fed withdrawing, we will basically see the tide go out from a liquidity standpoint. We will see who’s been out swimming with their pants down, and in my mind, the fundamentals that justify a high crypto valuation simply don’t exist.

It is possible that the continued evolution of the true defi environment would prop up valuations. I don’t personally think that will matter on a 90 day time scale – maybe over the course of a few years certainly.

You could also argue that in an environment where equities are up, there will be a natural portfolio rebalancing of equities into riskier segments of the market, such as crypto. However, I do think it’s possible for the S&P to be up and crypto to be down – the withdrawal of the Fed means all the crazy Fed driven trades of the past two years will continue breaking down. The wash out of high flying SPACs, meme stocks, crypto, etc., will continue.

Equities up and crypto down has been a bad trade in the last few days, so this is a tough call (particularly has it has been implemented in my own portfolio), so we will see.

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