Short-Term Pain, Long-Term Gain

CoinVoiceJul 11, 2024
Short-Term Pain, Long-Term Gain

The current market pullback looks like a gift for long-term investors; key tailwinds could drive Bitcoin to $100K by year-end.

The crypto market is facing a weird dynamic right now: All the short-term news is bad, and all the long-term news is good. The dichotomy is creating an incredible potential opportunity for long-term investors.

Let me explain.

The Massive Tailwinds at Crypto’s Back

I have never seen a better long-term setup for crypto than right now.

We have:

  • Extraordinary Inflows Into Spot Bitcoin ETPs: Since launching in January, spot Bitcoin ETPs have pulled in $15 billion in net new assets, becoming the most successful ETP launch of all time. But here’s the thing: I believe they’re just getting started. The ETPs are not even approved yet for mainstream use by the largest wealth management platforms, including Morgan Stanley and Wells Fargo. When that happens—later this year, I suspect—we’re likely to see billions more flow in.
  • The Bitcoin Halving: Bitcoin went through its quadrennial halving in April, reducing new supply by 50%. Historically, Bitcoin has performed exceptionally well in the year after each halving.¹ Will this time be any different?
  • Spot Ethereum ETFs: The SEC appears ready to approve spot Ethereum ETPs in the near future, adding to the fun. We believe these ETPs could attract $15 billion in net flows in their first 18 months on the market.
  • A Sea Change in Washington’s Attitude Towards Crypto: Crypto has faced outright hostility from Washington in recent years, hamstringing industry growth. But in one of the most stunning developments of the past few months, attitudes have changed sharply. In May, for instance, 71 Democrats joined 208 Republicans in support of a promising new regulatory framework for crypto. One reason for the new bipartisan support? Crypto has built political muscle thanks to one of the strongest networks of super PACs in Washington. This is a game-changer. What’s more, in a historic first, the GOP just made crypto part of their official 2024 platform, signaling its growing relevance in national elections.
  • Fed Rate Cuts: The Fed funds futures markets are pricing in two rate cuts by the end of 2024, and four to five rate cuts over the next 12 months. Falling rates are generally good for crypto.

Add strong growth in stablecoins, big developments in Layer 2s, institutions like BlackRock moving deeper into the space, and more, and it’s one heck of a setup. The right mix of developments in the second half of the year could easily drive Bitcoin to $100,000 and push Ethereum to new all-time highs.

The Short-Term Headwinds

So, given all the good news, why are prices down? The answer: one-off sales.

Specifically, crypto markets have been spooked by multiple short-term liquidity shocks that recently hit the market. In the past two weeks, we’ve seen:

  • Mt. Gox Distributions: Mt. Gox—the crypto exchange that failed in 2014—finally began paying out its creditors in early July. This is a big deal: Mt. Gox is expected to distribute more than $8 billion in Bitcoin to creditors over the next few months. Billions could be sold immediately.
  • Silk Road Sales: The U.S. government holds over $12 billion in Bitcoin it seized in 2013 from Silk Road, the infamous online black market. On July 1, the U.S. Marshals Service announced that it had selected Coinbase Prime to sell these assets, signaling they could hit the market soon.
  • German Government Sales: Not to be outdone, the German government—which holds roughly $2 billion in Bitcoin from various seizures in the past—sold $900 million of its position, according to reports. The remainder could hit the market soon.

Consider: $8 billion from Mt. Gox, $12 billion from Silk Road, $2 billion from Germany … that’s a lot of Bitcoin. Making matters worse, these sales and distributions began in earnest over the July 4 holiday week, which is typically a low-liquidity time for crypto. This amplified the impact and led to large liquidations in the futures market, further pressuring prices.

Remember: This Too Shall Pass

But remember: These are all one-off sales. They will come to an end.

As investors, we’re taught to look past nonrecurring events when we evaluate investments. They don’t speak to the investment’s long-term value.

In other words, this too shall pass. Mt. Gox will distribute its Bitcoin, and that’s it. The U.S. government will sell its Silk Road assets, and then they’re done.

Meanwhile, the positives are ongoing. The Bitcoin ETPs aren’t going anywhere, Ethereum continues to attract new interest, Washington’s embrace of crypto appears to be accelerating, and so on.

That’s why the recent pullback is a gift.

Right now, one-off events are suppressing what I think would otherwise be a raging bull market. Once the market digests these short-term liquidity shocks, the future looks bright indeed.


This article is for informational purposes only. It is not offered or intended to be used as investment or other advice.

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