What Happened to the $500,000 Bitcoin Price?

Bitcoin has been touted as a no-brainer long trade following its recent halving event in April 2024. Based on previous halving cycles, bitcoin has "always" rallied following the periodic events, so why shouldn't one be long up the wazoo leveraged in bitcoin?

We have heard forecasts of $150,000, up to $500,000 even! Most of these commentators just use charts and daily technical analysis to analyze past cycles and extrapolate them into future cycles, hoping the same trend and projection works. This may have worked when bitcoin was a completely isolated asset, a truly decentralized asset. Today, as more and more hedge funds and institutions along with BlackRock  (BLK)  and others adopt it, it becomes less so. Why?

Bitcoin is evolving into a mature asset as it is getting adopted more and more by the mainstream set of asset classes. There are pros and cons with this. The pros are that liquidity will pick up and if it is to become a real allocation — even a small percentage of money coming into it can take it much higher as the newly-issued supply is getting cut in half every four years. 

The cons are that the more it is held by others, the higher it starts to get correlated to other asset classes. This means it also succumbs to global macro and risk liquidity factors, outside of its crypto-agnostic world of flows. The rally in most asset classes since the last decade have been aided by the Fed's liquidity cycle as we have printed so many trillions of dollars of debt that we have debased fiat currency altogether. This has and continues to be one of the main reasons to be long bitcoin. Well, to be long a digital version of gold, even gold itself!

Going long on commodities had been the no-brainer trade this year after the massive rush to buy technology, AI-driven stocks all of last year and into the start of this one. It seemed that every institution moved from the likes of Nvidia (NVDA)  to then playing or pushing for the AI data center theme, demanding a massive surge in power demand to boost the electricity in those center. 

Be that as it may, that is a much longer-term story, after years of it being proven and tested as to how much power demand will be needed. But secular themes are just that, long-term in nature. There is a near-term narrative that takes precedence as things move in cycles and, assuming you're not Warren Buffet, it may be harder to hold onto long-term themes sitting with all of that PNL pain in the short term. Copper is a great case in point on that narrative, as every single analyst has jumped on the bandwagon on long copper without understanding where more than 30% of its demand today comes from: China!

Everyone has taken for granted that the Fed will cut so they are willing to look past the slowdown and go straight for the assets that will do well post a Fed cut! 

Ridiculous as it sounds, one cannot bypass cycles. The Fed may cut but it may be a lot later and perhaps a bit too late. U.S. economic data is slowing down quite fast. This was masked by the massive fiscal spend but it was just delayed. The U.S. consumer is tapped out and manufacturing is just not able to pick up. Instead, it is rolling back down. Liquidity is tight as the secular inflation is a lot higher and they cannot afford to let it rip back up as it did in 2022. The only question is: Will the Fed be able to cut rates soon enough to save the U.S. from falling into a recession? Perhaps it is already too late.

At the time of publication, Bengali had no positions in any securities mentioned.