Diamond Hands: Why Bitcoin and Crypto Sell-Off Is Darwinian

In today’s Money Morning…BTC and ETH price charts look like small-cap charts…the FUD (fear, uncertainty, and doubt) strikes back!…old finance wants to understand this ‘existential threat’…and more…

Editor’s note: I sit down to chat with our in-house crypto expert, Ryan Dinse, about all things bitcoin. We cover a recent Elon Musk tweet about BTC’s sustainability, Ray Dalio’s revelation that he holds the crypto, and what the future holds for bitcoin as the (US) digital dollar initiative starts to progress. You can listen to that via a direct download link right here.

Survival of the fittest.

Weak hands shaken out by strong hands.

Or dare I say it, diamond hands.

If you don’t know what that means, you can check out the often funny and always crude definitions of ‘diamond hands’ on Urban Dictionary for a laugh.

But in all seriousness, the recent broad-based crypto sell-off that took a chunk out of the Bitcoin [BTC] price had to happen eventually.

BTC and ETH price charts look like small-cap charts

You can see the hectic drop for the BTC price in USD below:


BTC and ETH Price Chart

Source: Tradingview.com

[Click to open in a new window]

After shedding more than 50% from top to bottom, it found some support in the range above.

Ethereum [ETH] gave up even more, it shed around 60% from top to bottom and it’s a similar chart:


BTC and ETH Price Chart

Source: Tradingview.com

[Click to open in a new window]

Charts like this are common in small-cap land.

The message will be to ‘diamond hand’ the stocks.

Well, not really (don’t be blind to risk), but stay strong will be the message.

It’s a high-risk, high-reward caper, the small-cap space.

And drops of 50% or more are not uncommon.

One of the stocks I’m going to go in-depth on is down that much, and I’m keenly aware that holders might be feeling like recent BTC and ETH investors.

Burnt, fearful, and anxious.

So, some reassurance is in order.

Along with that, there’ll be a few insights on why you need to maintain your conviction, and an explanation of why the justifications for holding for a minimum of two years are still in place.

Which brings me to what triggered the BTC/ETH sell-off and why this is a blip in the grand arc of history.

Bitcoin vs Gold — Which Should You Buy in 2021? Download your free report now

The FUD (fear, uncertainty, and doubt) strikes back!

This tweet about sums it up:


Nathaniel Whittemore

Source: Twitter

[Click to open in a new window]

Many retail investors likely panicked — something which is confirmed by Glassnode data:


Bitcoin: Spent Output Age Bands

Source: Glassnode

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As the crypto-analytics company puts it:

If we compare this to the equivalent spending by longer term investors, particularly those with coins 1y-3y old (last cycles buyers) we see the opposite picture. Holders of coins aged 1y-3y were actually spending their coins much earlier, likely rotating capital to capture the price out-performance of ETH at that time.

During this capitulation sell-off however, the spending of 1y-3y old coins was actually significantly less and declining as a proportion of total activity. This suggests that old hands did not panic sell nor rush for the exits.

In a nutshell, the ‘smart crypto money’ cycled into ETH at the height of retail BTC euphoria.

And by the time the FUD bloodbath slowed down the short-term holders were in a dire situation.

Glassnode notes that, ‘Short term holders currently hold an aggregate unrealised loss of -33.8% of the Market Cap on their coins.

Ouch.

Some of these recent punters will HODL, safe in the knowledge that central banks are taking a flamethrower to fiat’s value.

Others will cash out and never return after this stinging reminder that crypto is a volatile beast.

And everyone knows the Darwinian mantra.

Have you heard this one though?

We are always slow in admitting any great change of which we do not see the intermediate steps.

Charles Darwin

I quote this because old finance types are slowly admitting that a great change is happening — because they don’t see the steps in between.

Take this guy, for instance…

Old finance wants to understand this ‘existential threat’

Mike Durbin, head of Fidelity Institutional which is part of the Fidelity Investments behemoth, has this to say about blockchain and crypto:

In some sense, it’s an existential threat to what we do…there is the intellectual curiosity of what this technology (blockchain) could do for us, or to us, over the coming years…Cryptocurrency just happens to be the tip of the spear.

I’ve made the point yesterday that the old power players will jostle to retain their hegemony in the new environment.

BTC doesn’t have lobbyists because it doesn’t need them.

It’s a face-value proposition.

Do you trust fiat, or the trust machine that is crypto?

I choose crypto.

There will be more sell-offs, but these intermediate steps are just part of the path towards a re-imagined form of money.

It’s a great discussion about how to stay a step ahead of the entrenched financial order as they look to see off this ‘existential threat’.

Regards,

Lachlann Tierney Signature

Lachlann Tierney,
For Money Morning

PS: Promising Small-Cap Stocks: Market expert Ryan Clarkson-Ledward reveals why these four undervalued stocks could potentially soar in 2021. Click here to learn more.


Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Lachlann is involved in two publications:


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