Last week, I said: Bitcoin: The (Temporary) Top is In.  When I wrote that, Bitcoin was trading at around $47,000 USD.  Bitcoin hit just under $52,900 USD on Thursday.

Apparently, the top was not in.  Here’s the five-year chart:

As I write this at 6:30 am Saturday morning, February 17, 2024, Bitcoin is trading at $51,273, which, as you can see, has closed above some major resistance levels.  in fact, there are only two major resistance levels remaining: $59,291 and the all-time high of around $69,908.  A shorter-term view is more instructive:

As you can see, there was a major convergence of technical indicators (all of the different coloured lines) around $48,000, so when that level was breached, it was clear sailing to $52,000.

But wait, it gets better:

As noted last week, I own a small MSTR – Microstrategy Inc. position.  In anticipation of the temporary Bitcoin top, I did a covered write to “lock in” my gains.

  • On February 8, I sold the February 9, 2024, $585 calls for $7.50.  MSTR went way up, and on February 9, I bought them back for $59.  Oops.  That’s a loss of $51.50.
  • On February 9, I sold the February 16, 2024, $615 calls for $45.  MSTR went way up, and on February 15, I bought them back for $94.  Oops. That’s a loss of $49.
  • Then on February 14, I sold the February 16, 2024, $770 calls for $40.  MicroStrategy pulled back, and on February 16, the options expired worthless for a profit of $40.

To review the math, that’s an overall loss on the options of $60.50.  In hindsight, I should have done nothing.  I got too cute.

The only good news in this sorry tale is that on February 8, when I did the first covered write, MicroStrategy was trading at $580 per share.  It closed on February 16 at $699.56 per share, so my profit per share is $120, which more than offsets my loss on the options of $60.50.

(Even worse, as is often the case, the stock closed at $699.56, which of course, is just below the “nice round number” of $700, so I’m sure many option holders got “reckt.”  I should have sold $700 calls and waited, and I would have done great.  Oh well, that’s life).

The big question, of course, is, do I do it again?

The answer, probably, is yes.

MicroStrategy is highly correlated to the price of Bitcoin, and Bitcoin has had a great run.  From January 23 to February 16, it was up 37%.  Bitcoin won’t continue to rise by 37% every 24 days.  A pullback is inevitable.  So, yes, I will likely do a covered write next week, but we shall see.

Returning to the above charts, Bitcoin appears to be at a major resistance level.  It’s near the top of the parallel up-channel and many resistance levels.  A pullback below $50,000, an even down to $44,000, would cause no long-term technical damage, so the safe bet is for Bitcoin to fall in the coming week.

But that’s what I said last week, and I was completely wrong, so who knows?  It’s obvious that there is significant demand from the new spot ETFs:

If Bitcoin hits a new high, this demand will increase, so in the medium to long term, I expect Bitcoin to increase.  My base case remains that Bitcoin will hit $100,000 by the end of the year.  It’s a solid investment for a portion of your portfolio but is highly volatile, so don’t bet the farm on it.

One final point on MSTR – Microstrategy Inc.: it’s a play on Bitcoin, but also a play on its possible future inclusion in the S&P 500 Index, which would create a new wave of institutional buying (because if you track the SPX, you would have to buy it).

According to the S&P Dow Jones Indices Methodology, page 7, to be included, a company requires a market capitalization of US $15.8 billion or more.  Today, MSTR has a market capitalization of just under $12 billion, so it’s not eligible yet.

MSTR owns 190,000 Bitcoin, currently worth $9.8 billion.  With a market capitalization of $11.87B, MSTR has a premium over Bitcoin value of around $2 billion.

If Bitcoin hits a new high of $70,000, MSTR’s Bitcoin stake would be worth $13.3 billion, and if you apply the same premium to net asset value of $2 billion, that would imply a market cap of $15.3 billion, which is very close to the level required for inclusion in the S&P 500.

Of course, my analysis is simplistic.  MSTR has debt on its balance sheet, so it’s not as simple as multiplying the Bitcoin value by its holdings to determine NAV.  But it is also true that MSTR will likely buy more Bitcoin so that the holdings will increase.  My point: in addition to their Bitcoin holdings, MSTR has other “tailwinds,” so it is a prudent, although very volatile, speculation.  Buy on the dips.

Those are my thoughts.  I was wrong last week.  Let’s see how it goes this week.  See you next week.

 

 

Bitcoin: The (Temporary) Top is In

by JDH on February 10, 2024

Today, a deeper dive into Bitcoin.  Let’s start with the five-year chart:

I’ve drawn the long-term trend line, starting with the peak in 2019, and then pivot points in 2021, 2022, and 2024.  I’ve also drawn in a shorter-term trend line starting at the October 2022 peak.  I’ve circled the pivot points:

Keep the big picture in mind, as we Zoom in.

As of 6:45 am Easter Time on Saturday February 10, Bitcoin has bounced off major resistance:

Bitcoin has bounced off the:

  • orange uptrend line going back to the cycle peak in June 2019
  • blue horizontal line at $48,202, which was the intermediate top from March 2022
  • red uptrend line going back to the peak on October 31, 2022

I know what you are thinking: technical analysis, “lines on a chart,” is just “astrology for men.”  Probably.  But, if everyone believes it, it influences behaviour, whether “true” or not.  When you have many lines that converge, it’s powerful resistance, and that’s what we have today.

Bitcoin peaked at $47,500 90 minutes before midnight on Friday, and that was the top.  It dropped 1.3% by 6:00 am Saturday morning and has recovered since then.

Perhaps this is a very temporary top, and Bitcoin will hit $50,000 this weekend.  However, it looks to me that $49,000 is very significant resistance, so a consolidation appears in order.

Remember the ETFs?  Bitcoin pumped leading up to the announcement and then consolidated.  It was buy the rumour, sell the news.  We are now approaching the halving in April (when supply growth is halved) and the expectation is that the halving will lead to higher prices.  It will, but not immediately, which is why I think we are in a consolidated phase for now.

Long term I expect much higher Bitcoin prices, but not today.

One final chart to ponder:

Here is the chart of MicroStrategy Inc., MSTR:

This is a daily chart.  Take a look at the last two candles on the chart, for Thursday and Friday.  Talk about a “gap up,” eh?

From the low on Wednesday to the close on Friday, MSTR was up 38%.  Do you think that rate of growth is sustainable?  Me neither.  By way of comparison, during that same time period Bitcoin was up 12.8%.  What’s the difference?

Leverage.

MicroStrategy is a data analytics company that kicks off around $75 million USD profit per year.  That’s not why the company is growing.  They also borrow USD to buy Bitcoin and hold it in their treasury.  They are long Bitcoin and short the US Dollar.  They currently hold 190,000 Bitcoin.  So, what’s the difference between MSTR and one of the new Bitcoin spot ETFs?

Leverage.

They borrowed (at low interest rates) to buy Bitcoin, which is why if Bitcoin goes up 12%, MSTR goes up by 38%.  Of course, the opposite is also true.  When Bitcoin drops, MicroStrategy drops more.

I own MSTR.  It’s not a large percentage of my portfolio, but it’s a great gamble for the risky portion of my holdings.  Sadly, this week it went up so fast I got burned.

On Thursday, I thought, “MSTR has gone up a lot, I’m going to do a covered write to lock in my gains,” so I sold the February 9, 2024, $585 calls.  At the time, MSTR was trading at around $570, and I sold them for $7.50, so I thought, “what are the chances that MSTR would go up by more than $20 in the next 24 hours before expiry?”

I lost that bet.

By Friday afternoon, it was trading well over $644, so I decided to buy back the options (“cover to close”) so I didn’t lose my shares.  It cost me $59 to buy them back.  Ouch.

I then immediately doubled-down, and did another covered write, selling the February 16, 2024 calls, strike price of $615, for $45.  If by the end of the week MSTR falls back to where it was on Thursday, those options expire worthless, and I’m a bit closer to whole on the transaction.

In hindsight, I should have sat there and done another, but who knew?

If MSTR is lower early in the week I’ll decide whether I close out my calls, or wait for expiry.  We shall see.

So, to conclude: I believe Bitcoin is headed much higher, but not immediately, so govern yourselves accordingly.

Thanks for reading; see you next week.

 

 

Here’s the Thing

February 3, 2024

The market sure looks over-extended: The S&P 500 Index is up 126% from the pandemic lows.  It’s up 42% since the lows of October 2022.  The economy doesn’t look great.  Unemployment is increasing, inflation remains problematic, wars are ongoing, immigration is a massive problem in North America, and we are in an uncertain election cycle.  […]

Read the full article →

The Macro View

January 27, 2024

Let’s start with the macro view: specifically, when will the recession start? I am on record as expecting a recession last year, and it does not appear that a recession started last year, so what’s the deal? The deal is that “fiscal stimulus” is still a thing.  The federal governments in both the USA and […]

Read the full article →

The Pre-Collapse Holding Pattern

January 20, 2024

I have no idea if we will have a collapse.  The S&P 500 made a new all-time high this week, which is either proof of a new bull market or a sign of a double top (since the market is now back to the peak set at the start of 2022). Gold is also stuck […]

Read the full article →

Bitcoin: The Only Story This Week

January 13, 2024

That was quite a week, eh? As was widely expected, on January 10 (the last day possible, given the results of a 2023 court case), the SEC approved 11 spot Bitcoin ETFs.  The big question was “what would that do to the price of Bitcoin?”  Here’s what I said last week: My guess is it […]

Read the full article →

And so we wait

January 6, 2024

The discussion on crypto Twitter for the last few months is “when, or if, the SEC will approve spot Bitcoin ETFs?” The SEC approved Bitcoin Futures ETFs, but they exist to help Wall Street make money.  They don’t help investors. In its quest to protect investors, the SEC approved futures bitcoin ETFs before approving spot […]

Read the full article →

2023 Review and 2024 Predictions

December 30, 2023

Let’s start with the 2023 year in review: overall, it was not a great year. The SPX was up 25% this year, so you would think it was a great year.  Unfortunately, I did not “bet the farm” on the SPX.  The TSX was up 8%.  What accounts for the difference?  The gain in the […]

Read the full article →

A Pre-Year End Review

December 23, 2023

So where are we at? Not where we thought we would be. At the end of 2022, “everyone” predicted a recession in 2023 and a stock market correction or crash. As of the close of trading on December 22, 2023, the S&P 500 is up over 25% for the year.  The QQQ (Nasdaq) is up […]

Read the full article →

The Year End

December 16, 2023

This is not my year-end recap and predictions for next year post.  I might do one, or I might not.  But I can tell you which way the world is going. First, inflation is down.  Way down.  I predict that we will see a CPI print of zero in the summer of 2024.  Why? Money […]

Read the full article →