Where’s Bitcoin Going in 2022?

Crypto investors remain under the gun … historical perspective on the weakness … a bullish near-term catalyst … refocusing on the long term

For crypto investors, recent weeks have felt like a financial root canal.

Week-after-week of falling prices… headlines about the coming sector implosion thanks to heavy-handed regulation… calls of a bursting bubble…

It’s been painful.

It’s also been normal.

As crypto investors know all too well, bitcoin suffered a brutal bear market beginning in the spring.

From mid-April through late-June, it lost more than half of its value.

But while crypto bears gleefully declared this reflected bitcoin’s “fad” status, crypto bulls who understand bitcoin’s historic volatility saw this as nothing more than standard volatility – and a buying opportunity.

Investors who purchased at July lows were rewarded were 127% gains as Bitcoin surged to a new all-time high over the summer and fall.

***This heightened volatility is part of bitcoin’s DNA

If you understand that reality, you can make big money in bitcoin and elite altcoins. If you don’t, you can lose big money.

Either way, today’s bitcoin/crypto volatility is not unusual.

To illustrate, the below chart comes from Charlie Bilello. In the “% Decline” column, you’ll see how far bitcoin fell in various crashes over the last 11 years. And there are a lot of crashes.

But in the “% Return to New High” column, you’ll see the ensuing percentage return bitcoin tacked on in subsequent months on its way to a new high. And there are a lot of monster gains.

You’ll also see the chart is slightly dated, extending only through last spring. So, it doesn’t include the “51% drop” followed by a “127% surge” we just detailed.

You should also know that Nasdaq.com’s research into bitcoin’s average volatility finds that its medium volatility (measured as 30-day standard deviations of daily log returns annualized) is between 50% and 100%.

Bottom-line – volatility is not the same as “risk.” Nor is it a sign of impending doom. It’s simply a characteristic of an asset, like a fingerprint.

When you expect exaggerated volatility from your crypto allocation and factor it into your investment plan, it’s a non-issue…though the financial media will do its best to convince you it is.

***So, what should crypto investors be expecting right now?

A few days ago, our crypto experts, Luke Lango and Charlie Shrem, offered their insights for their Crypto Investor Network subscribers.

In short, be prepared for more weakness, but on the other side of it are major gains.

Let’s begin with Luke and Charlie explaining what’s behind recent pricing pressure:

The U.S. Federal Reserve, the Bank of England, and the European Central Bank all announced that they would start tapering back on their Covid-induced bond-buying programs, while the Fed signaled three rate hikes for 2022 and the Bank of England actually raised rates this past week.

More hawkish policy stances from the central banks mean less liquidity in the markets going forward, which theoretically reduces investor risk appetites.

This implies less buying pressure for risky assets, including cryptos. Ahead of this tightening, then, cryptos are struggling.

Makes sense.

We believe this is the start of some near-term choppiness throughout the crypto markets.

***So, how low might bitcoin go in this latest bout of weakness?

Bitcoin faces several headwinds.

From a technical perspective, it has recently broken below its 50-day, 100-day, and 200-day moving averages for the first time since May 2021.

From a regulatory perspective, there’s the risk that U.S. policymakers might be too heavy-handed in how they treat the crypto sector.

So, how might this impact bitcoin’s price?

Back to Luke and Charlie:

In the near-term, we think it is entirely probable that Bitcoin falls to $42,000.

However, we’re still very bullish on cryptos long term.

Fundamental adoption trends remain robust. The legal backdrop continues to improve. Venture capital funding remains vigorous. Technological improvements remain impressive.

Long-term, everything looks great.

I agree with Luke and Charlie about the potential for more short-term weakness, but I’ll throw in one bullish wrinkle that might mean we don’t see $42,000…

***Why crypto could get a big bounce in early 2022

The crypto sector has a structural advantage that, at present, stocks don’t have.

There’s no “wash sale” rule.

In short, this rule prevents stock investors from selling a position at a loss (so they can use those losses to offset gains), then buying back the same, or substantially identical asset, within 30 days.

Because the crypto sector isn’t fully regulated yet, no such rule exists for bitcoin and altcoin investors (expect this to disappear in 2022).

Now, here’s a chart of bitcoin’s percentage gains/losses this year…

Let’s say you bought at the wrong time – the spring, or late fall – and you’re now sitting on heavy losses.

If you’re still bullish on the sector, why would you not sell bitcoin, or your underwater altcoins, lock in those capital losses, then immediately buy back the exact same asset come the first week of January?

It’s a no-brainer.

I’m not the only one who sees this as a contributor to recent pricing pressure.

From Yahoo! Finance:

Starting in 2022, the Internal Revenue Service (IRS) is expected to shut down a longtime tax loophole that allows cryptocurrency investors to harvest their losses to offset their tax burden. 

Digital coins, already under heavy selling pressure as the holidays approach, are getting hit by wealthy investors fearing a tighter tax regime next year. The shrinking loophole could be making matters worse.

Following a “relief rally” after the Federal Reserve’s policy decision, cryptocurrencies have been hammered along with stocks, as Omicron variant fears grip markets again.

While short-term volatility has come to define crypto trading, year-end tax positioning may also be playing a role.

Given this, it’s entirely possible we see a wave of fresh capital pouring into crypto, buoying the entire sector in early January.

***Keep in mind, bitcoin at $100K is still in the cards for the not-too-distant future

Many experts thought bitcoin would end the year at $100K. Present momentum suggests that’s not going to happen. But many experts are still pointing toward this level in 2022.

Yesterday, Forbes published a “Crypto And Blockchain Predictions For 2022” article. Bitcoin at $100K made the list.

From Forbes:

Bitcoin will hit 100k. 

This might seem like a relatively conservative estimate for the price of bitcoin in some circles, but it is worth noting that during 2021 the price of bitcoin did exhibit some of its historical volatility, ranging from lows around $30,000 to all-time-highs of nearly $70,000.

Setting aside market volatility, and seeking to remain as objective as possible, the case for $100,000 bitcoin seems to have support points.

Rising inflation, the continued monetary easing around the world and the proliferation of cryptoassets all point toward the following conclusion; cryptoassets are here to stay.

What form or ultimate result that cryptoassets take remains uncertain at this point, but the integration of cryptoassets has already occurred. That said, and understanding the interest and appetite for growth oriented assets seems to point to an upward path for bitcoin and cryptoassets moving forward.

***Luke and Charlie echo this “upward path” sentiment

As noted a moment ago, Luke and Charlie see downside risk in our immediate future. But for longer-term investors, this spells opportunity.

Back to their Crypto Investor Network update:

As long-term bulls, a near-term pullback is exactly what we want. It’ll give us an opportunity to the buy our favorite cryptos at lower prices.

We are very busy looking for potential opportunities in the crypto markets as we speak, but we are being patient right now because we do believe things could get worse before they get better.

No one wants to hear “things could get worse” but it’s critical you accept it and mentally prepare for it by viewing it with the right perspective.

Bitcoin and altcoins soar and crash. That’s their volatility fingerprint. But is bitcoin going away? Are altcoins going to stop eliminating middlemen, increasing efficiencies, and cutting costs?

No.

Bottom line, be wise about your investment amount in crypto (meaning don’t over-allocate to the point where you’re stretched too thin and losing sleep). But if you’re investing wisely and you’re in it for the long-haul, then current price weakness is nothing more than a sector sale.

If you’d like to be a part of this ride with Luke and Charlie, click here. I’ll let them take us out:

Overall, we’re long-term bullish, near-term cautious on the crypto markets – and that’s a dream set-up, because it means we are going to get an opportunity within the next few weeks to snag some cryptos with 100%+ upside potential.

Have a good evening,

Jeff Remsburg