[Updated 22 November 2022]
- We look at the latest bitcoin trends, including macro risks and on-chain/flow metrics, to reveal the best time to buy bitcoin and the risks of buying BTC.
- For trading bitcoin over the next two to four weeks, we are neutral to slightly bearish. That means we expect stable to falling prices.
- However, we think bitcoin is a good long-term investment for the next one to three years and are bullish overall. That means we expect the bitcoin price to rise in the long term.
Is Now a Good Time to Buy Bitcoin?
Bitcoin traded in a tight range between $18,500 and $20,000 during September and October. However, following the spectacular collapse of crypto exchange FTX, bitcoin fell 26% at one point. Down 18% overall in the last month, BTC performance has departed from that of other risk assets. For example, the S&P 500 is up 4% over the last month, as of 22 November 2022.
However, even the recent FTX chaos fails to detract from the longer-term decline in crypto markets. Since its all-time high of $68,789 on 12 November 2021, bitcoin has fallen 77%. Likewise, ethereum – the other major player in the crypto space – is down 80% from its 2021 high of $4,891. These declines follow the broader selloff this year, which has extended across equities, bonds, and real estate.
The generic risk-asset rout began at the end of 2021. Central banks are largely to blame as they raise interest rates to reduce demand in overheating economies following the pandemic stimulus. 26 August 2022 saw Chair Jerome Powell reaffirm the Fed’s hawkish stance at Jackson Hole, a move that came alongside a new bout of ECB hawkishness. Then came another 75bp hike in interest rates at the September FOMC meeting. Yet perhaps surprisingly for the traditionally volatile asset, BTC held the line around $20,000 – prompting some to call a bottom to the beleaguered coin (the recent BTC price action has dashed those hopes).
We still think the Fed will need to hike considerably beyond market expectations. US inflation may have peaked, slowing for the 4th month in a row to 7.7% in October. However, key inflationary pressures remain, with shelter and fuel oil prices increasing faster. Our view was that the November FOMC meeting would see no pivot to slow interest rate hikes as it would ease financial conditions when inflation is still high and persistent. We were correct. We expect the Fed to hike 75bp again in December, largely for the same reasons.
The global backdrop of rising interest rates should sustain the risk-off momentum in the near term. For bitcoin, meanwhile, if the price drops further below current levels, we could see it reaching $8,250. Amid recession risks in the US and most of the West, plus an energy crisis in Europe, things are not looking great for bitcoin.
Should you buy BTC now? The quick answer is ‘probably not’. The macro backdrop for bitcoin is bearish. We analyse various on-chain/flow metrics for bitcoin, which are neutral. So, overall, we are neutral to slightly bearish. Therefore, if you have a two-to-four-week horizon, now may not be the best time to buy bitcoin.
Why Has the BTC Price Dropped?
Macro Reasons for the Current Bitcoin Price
Crypto markets almost looked like they had partial immunity from the tech sell-off and growing risk aversion. But recent price action has put paid to that notion. The relative stability of bitcoin between mid-January and mid-April, when it choppily trended up with higher highs and higher lows, was simply the calm before the storm. Bitcoin is down 77% since its November high of $68,789 (Below is a BTC price chart showing the current bitcoin price). And there is likely more to come.
The crux of the matter is that US interest rates are rising. Years of low interest rates since the global financial crisis in 2008 have seen markets reach extreme valuations. Who cares if tech companies are loss-making if the companies can borrow easily? And if companies cannot borrow money, they can attract capital from investors, who themselves have likely borrowed money.
Crypto markets have not been immune to the support from cheap leverage in the fiat markets. After all, crypto offers the tech dream of scalability and regulatory arbitrage. And if there was any doubt that crypto was not benefiting from low interest rates then the recent declines in crypto as US rates have risen should remove it.
Furthermore, the correlation of bitcoin to NASDAQ started to increase sharply just as US interest rates started to rise. This is a common occurrence throughout history. When the liquidity tap turns off, usually by central banks raising rates, the correlation between diverse assets shoots up. This time appears no different.
How Low Can Bitcoin Prices Go?
One exercise is to see how low prices could get were the NASDAQ to suffer a 2000-style crash. After all, earlier in 2021, the bitcoin and NASDAQ correlation reached highs of almost 80%. So where the NASDAQ went, bitcoin followed. The correlation has declined recently, but should it rise again, the historical drawdowns of NASDAQ could be informative.
Back in 2000, the NASDAQ suffered a 78% drawdown. As of November 2022, the NASDAQ is in a 30% drawdown. A repeat of the 2000-style drawdown would put the NASDAQ at 3,500. So where would crypto be if NASDAQ were trading at this level? We estimate a regression between bitcoin/ethereum returns and NASDAQ returns from 2020 onwards. Based on this relationship, we find:
- Bitcoin prices would reach $8,254 if the NASDAQ fell to 3,500. This implies a 72% decline from current levels.
- Ethereum prices would reach $143 if the NASDAQ fell to 3,500. This implies a 92% decline from current levels.
What Else Is Happening in Crypto?
Regulation is becoming more of a theme throughout 2022, with various executive orders signed already. Increased regulation should mean less uncertainty around crypto markets for investors, which would be bullish.
On the flip side, overregulation could stifle innovation. The ongoing regulatory backdrop will be key to monitor.
There are several macro events to keep track of over the coming weeks that will influence crypto prices:
- Rising yields have mechanically increased the probability of a recession within the next 12 months to 80%.
- Inflation remains at the forefront of investors’ minds, with data coming in hotter than expected for September.
- Sam Bankman-Fried’s (SBF) crypto exchange, FTX, imploded. The impact has rippled through cryptocurrency markets and the fallout has taken no prisoners.
- Genesis Global Capital (Genesis), the lending partner of Gemini’s yield-generating product, Gemini Earn, has paused withdrawals, leaving $700mn of Gemini Earn customer funds in limbo.
- A class action law suit has been filed against SBF and several athletes and celebrities who helped promote FTX.
- Crypto lender, BlockFi, prepares for bankruptcy.
- Crypto lender, Salt, halts withdrawals.
- Liquid Global (a crypto exchange owned by FTX) halts withdrawals.
- Kim Kardashian has had to pay $1.26mn over a crypto ‘pump and dump’, highlighting the murky regulation around sponsored crypto content.
- Fed Vice Chair for Supervision Michael Barr said crypto should have oversight similar to that of traditional banks.
- Crypto hacking is on the rise with around $1.9bn stolen already according to Chainanalysis.
Summary of BTC Analysis
The bottom line is that crypto, including bitcoin, will remain under pressure. For bitcoin, this means a breach below $15,000 is possible. The main near-term support would be Fed dovishness rather than any crypto-specific dynamics. And for long-term investors, we still think some allocation to crypto makes sense – just like an allocation to equities also makes sense. But be prepared for near-term weakness.
For all our latest analysis on crypto markets, click here.
Bitcoin and Crypto Price Trackers
Updated 18 November 2022
The FTX fallout has increased volatility in the two major cryptocurrencies after it hit multi-year lows last month. Bitcoins annualised 30-day volatility has jumped from 26% at the start of the month to 70%, while that of ethereum has jumped from 43% to 102%. We expect volatility to remain high as the FTX fallout continues to unfold.
Performance of Our Indices
As for our various indices, they are all in the red. Our Metaverse Index (-13% WoW) is down the most, whilst all other indices are down between 5% and 12% each (Charts 1 and 2).
Our Metaverse (97%), Smart Contract (96%), and Privacy (96%) indices are correlated most to bitcoin, while our and DeFi (93%) index is correlated least to bitcoin (Chart 3).
On macro markets, bitcoin’s correlation to the S&P 500 (-20%) and the NASDAQ (-31%) flipped to negative. It turned negative on 10 November after Binance pulled out of a potential acquisition of FTX which sent bitcoin to multi-year lows. Meanwhile, its correlation to gold (-47%) also turned negative while its correlation to 10Y yields jumps to 42%.
- Smart Contract Platform Index: Solana (SOL) is down the most (-24% WoW) and Eos (EOS) is down the least (-4% WoW). Ethereum (ETH) is down 8% WoW.
- DeFi Index: Maker (MKR) is down the most (-26% WoW) while Uniswap (UNI) is flat on the week.
- Metaverse Index: Decentraland (MANA) is down the most (-21% WoW) and Axie Infinity (AXS) is down the least (-3% WoW).
- Privacy Index: Keep Network (KEEP) is down the most (-14% WoW) and Secret (SCRT) is up the most (+14% WoW).
- Bitcoin: this is down 5% WoW.
- Smart Contract Platform Index: All coins are in the green. Ethereum (ETH) is up the most (+18% WoW) and Terra Luna Classic (LUNC) is up the least (+2%).
- DeFi Index: Uniswap (UNI) is up the most (+12% WoW) and Maker (MKR) is down the only coin that is down (-14% WoW).
- Metaverse Index: The Sandbox (SAND) is up the most (+7% WoW) and Axie Infinity (AXS) is down the most (-6% WoW).
- Privacy Index: All coins are in the green. Dusk Network (DUSK) is up the most (+9% WoW) and Keep Network (KEEP) is up the least (+2% WoW).
- Bitcoin: this is down 7% WoW.
Should I Invest in Bitcoin? (A Beginner’s Guide)
Bitcoin and the crypto revolution are no longer nascent. With the length of the blockchain continuing to grow and decentralised finance (DeFi) gaining ground over traditional finance, this new asset class is reshaping the investment landscape.
We think bitcoin is a worthwhile long-term investment. However, we also note that bitcoin is extremely volatile. That means it experiences large price movements over short periods. Before investing, you must understand the risks involved: you could lose all or a large portion of your investment. Never invest money that you cannot afford to lose.
How to Make Money Investing in Bitcoin
It is easy to get carried away with the fear of missing out. You are probably aware of Cameron and Tyler Winklevoss, who are reputed to be the world’s first bitcoin billionaires with over 100,000 coins. Or what about Barry Silbert, the owner of Grayscale Bitcoin Trust, Coinbase and Coinbase? Success stories like these often give people FOMO – or the fear of missing out – if they do not invest immediately.
However, to invest in cryptocurrency, we must first understand it. Crypto tokens are unlike any traditional asset class. And they are all different. Just because you understand bitcoin, does not mean you know how ethereum works. Our video on bitcoin fundamentals can help you understand how bitcoin prices fluctuate and how to assess trends in important bitcoin metrics.
Each currency has different underlying protocols and technology. That impacts how they trade, their volatility, and how you can value them. Some are more like stocks, others commodities, and others currencies. And each crypto token has a unique structure of supply.
We think crypto markets are a worthwhile long-term investment. The technology can capture market share on some existing markets like payments and stock trading while creating new markets like valuable scarce digital assets.
When to Buy Bitcoin: Buying the Dip
Some say the best time to buy bitcoin is during price dips. This seems alluring at first – catching a cheap price and benefitting from the rebound. However, timing dips is notoriously tricky and frought with risk. What happens if it wasn’t a dip but the start of a long-term decline in prices?
We suggest paying attention to the long-term macro backdrop when asking yourself, should I buy bitcoin right now? Your exposure to bitcoin needs to be appropriately sized so that you can survive 50% to 80% drawdowns. Drawdowns provide good entry levels for exposure, but we would not go max long in an environment of rising central bank rates and falling global growth momentum.
Top Three Tips You Need to Know Before Investing in Bitcoin
Where to Buy Bitcoin
To buy bitcoin (BTC) or any other cryptocurrency, you need access to a crypto exchange. A crypto exchange is where buyers and sellers meet to exchange money for coins, coins for other coins, and coins for money. Many options are available such as Coinbase, Binance.com, or eToro – each come with various fee structures, so research which is best for your needs.
You also need access to a crypto wallet to store bitcoin and other cryptocurrencies. Many exchanges provide these, but not all do. You can also buy bitcoin on platforms like Paypal and Robinhood.
Cryptocurrencies can be extremely volatile. One way to cope with the volatility is to use dollar-cost averaging. Dollar-cost averaging is a strategy where you divide the total amount you want to invest across periodic purchases of the target asset. It simply means that you would invest the same number of dollars each month or quarter, regardless of market trends.
The idea is that when prices are high, you can afford less of the asset. But when prices are low, you can afford more. When the market recovers, you benefit from having bought more shares at the lower price. Please note that using this strategy will not always result in a profit or necessarily protect you from falling prices.
Diversify Your Crypto Portfolio
With the crypto landscape so volatile and diverse, managing risk in a portfolio is critical. That essentially means position sizing and diversification – as with any other kind of investment.
One of the best pieces of investment advice we have heard recently comes from Ari Paul, co-founder and CIO of Blocktower Capital, a crypto and blockchain investment firm. As Paul says,
‘Risk is only sizing. So, if you think bitcoin is too risky, you could size it at 0.1% of your portfolio or 0.001%. Too risky is never a reason not to own an asset. If something is positive expected value, risk adjusted, and relatively low correlation, you have to own it. That’s peak portfolio management 101.’
One way to diversify your portfolio is with stablecoins, although these have also been very high-risk following the Terra debacle. Our recent analysis has explored how safe is tether and which stablecoins could fall next.
Is now a good time to buy bitcoin?
For trading bitcoin over the next two to four weeks, we are slightly bearish. That means we expect falling prices. However, we think bitcoin is a good long-term investment for the next one to three years and are bullish overall. That means we expect prices to rise in the long term.
When was bitcoin at its lowest?
Since the start of 2021, bitcoin was at its lowest on 22 November 2022, when the BTC price was $15,711. Of course, prior to bitcoin’s major bull run in late 2020, it was much lower – under $10,000. However, bitcoin has not reverted to these lows even amid significant drawdowns.
Can you lose your money buying BTC now?
As with all investments, the value of bitcoin can rise as well as fall. While it is unlikely that bitcoin will suffer a complete loss of value, investors must be prepared to suffer drawdowns of between 50% and 80%. We recommend small allocations and diversification of your portfolio. Never invest what you cannot afford to lose.
When to sell bitcoin?
Traditional wisdom says you should buy low and sell high. But whether you should sell bitcoin depends on your investment horizon, risk appetite and financial goals. Although some websites speculate that certain days of the week are better or worse than others for selling bitcoin, we believe that any decision to buy or sell should be based on an analysis of crypto fundamentals.
Should I invest in crypto?
We think some cryptocurrencies like BTC and ETH are a worthwhile long-term investment. However, they are also extremely volatile. That means large price movements over short periods are common. Before investing, you must understand the risks involved: you could lose all or a large portion of your investment. Never invest money that you cannot afford to lose.
Appendix: What Are in the Four Indices?
Bitcoin: the OG of crypto markets deserves its own category and is in many ways the true benchmark for any other crypto market.
Smart contract platforms: after bitcoin, the big innovation was to have blockchains that were more programmable. These could host smart contracts or decentralised applications and have allowed the emergence of the metaverse and defi. Ethereum (ETH) is the most popular version of a smart contract platform. As well as ethereum, we also include some key competitors. The constituents of this index are: Ethereum (ETH), Cardano (ADA), Avalanche (AVAX), Solana (SOL), Fantom (FTM), VeChain (VET), Terra (LUNA), EOS (EOS), and Chainlink (LINK). We also include Polkadot (DOT) which allows interoperability between blockchains and the use of smart contracts via parachains.
Metaverse: coins associated with the creation of a virtual space/digital world on the internet using a combination of augmented reality, virtual reality, and social networks. The constituents of this index are Axie Infinity (AXS), The Sandbox (SAND), Decentraland (MANA), Enjin Coin (ENJ), Aavegotchi (GHST), Terra Virtua Kolect (TVK), Ultra (UOS), Phantasma (SOUL), RedFOX Labs (RFOX), and Gala (GALA).
Decentralised Finance (DeFi): financial services built on top of blockchain networks with no central intermediaries. This can be a broad category, so we narrow this down to platforms that focus on lending/borrowing, yield farming, automated market making and decentralised exchange tokens. The constituents of this index are: Aave (AAVE), Compound (COMP), Uniswap (UNI), Yearn.finance (YFI), Loopring (LRC), PancakeSwap (CAKE), Maker (MKR), 1inch (1INCH), Thorchain (RUNE), and Terra (LUNA).
Privacy Coins: coins that obscure transactions on the blockchain to maintain the anonymity of its users and their activity. The constituents of this index are Monero (XMR), Zcash (ZEC), Dash (DASH), Verge (XVG), Horizen (ZEN), Beam (BEAM), Secret (SCRT), Decred (DCR), Keep Network (KEEP), and Dusk Network (DUSK).
Dalvir Mandara is a Quantitative Researcher at Macro Hive. Dalvir has a BSc Mathematics and Computer Science and an MSc Mathematical Finance both from the University of Birmingham. His areas of interest are in the applications of machine learning, deep learning and alternative data for predictive modelling of financial markets.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.