Today's post will be much like debating the JFK assassination, lots of speculation, but with no real definitive outcome.
My theory, bitcoin's price fall since its peak in December has been caused by one man, the Lee Harvey Oswald of bitcoin.
The basic plot line follows the story of Mt. Gox. Mt. Gox was the largest bitcoin exchange in the world, responsible for more than 70% of all bitcoin volume several years ago. The exchange lost one million bitcoins and filed for bankruptcy. Subsequently, 200,000 coins were found. Now, years later, the bankruptcy trustee in Japan has begun selling these coins. The revelation of the selling occurred in the past couple of days.
To this point, it appears that the trustee has sold 40,000 coins. Below we can see the dates and quantity of coins moved to an exchange for sale.
It is no coincidence that bitcoin peaked just as he started to sell, and bottomed at around $6000 as he sold his final tranche of 18,000 bitcoins. Graphically, it looks like this:
Source: https://twitter.com/matt_odell/status/971432146656202752
It might seem strange that one of the great technological innovations of our time can be moved down 70% on less than $2 billion of bitcoin overhang, but this is very much part of bitcoin's trading character.
By my estimation, half of all bitcoins never trade. This includes Satoshi's one million coins and the 3-4 million coins that have been estimated to have been lost. This means that nearly all trading occurs among about 8 million bitcoins. Shockingly, given the amount of daily trading volume in bitcoin, these coins turn over every ten days. That is, most investors hold bitcoin for a very short period of time. Much of bitcoin's price momentum is determined by these people. They are not so much interested in the technology as they are in price momentum.
The other thing that drives near-term price is new investors. Last year they came for bitcoin in spades. Now that the upside momentum has been broken, they are standing on the sidelines.
The scary part for investors now is that the trustee has been willing to sell down to the $6000 level and he has only sold one fifth of his available coins. The trustee has been a horrible seller of bitcoin, especially as he knew that he would have to disclose his actions long before he completed his sales. These coins should never have been placed on an exchange for sale. He should have approached Circle or one of the other OTC firms and moved them all at once. Given the short-term nature of so many bitcoin traders, he has now advertised his book, the price at which he is willing to sell and is being front run.
I think it is now clear that one reckless man and very poor trader has tipped bitcoin into a severe bear market.
There is some good news in this, however. We now know what is going on, and while it may appear that he will be able to exert downward pressure on the market for some time, the trustee only has about $1.3 billion in bitcoin left to sell. I expect that bitcoin fans in Silicon Valley and at the larger OTC firms are now working feverishly to put together a group to buy them all.
Personally, I think that Amazon should buy them. As Jeff Bezos says, "Your margin is my opportunity." There is no better way to negotiate with Visa and Mastercard than while holding $1+ billion in bitcoin, the technology that will crush Visa and Mastercard's exorbitant fees. Additionally, Amazon's buying of the last of the Mt. Gox bitcoin would, in my opinion, double bitcoin's price.
This is all rank speculation on my part, but it isn't too hard to connect the dots. Bitcoin's technology continues to advance as Segwit adoption moves ahead and there are now nearly 1000 Lightning Network nodes active. Bitcoin's network has never appeared stronger, while the game theory aspect has pushed Germany to declare bitcoin exempt from capital gains taxes if used to purchase things. As such, bitcoin's most recent bear market may end very soon if we can clean up the sloppy seller.
Disclaimer: This is not to be construed as investment advice.
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