Bitcoin has had a wild 2020 and it’s sure feeling a like like Christmas 2017 all over again.
The largest cryptocurrency has surged nearly 219% this year and more than 24% over the last month alone.
The digital coin rose to a new all-time high of $24,225 on Sunday, just days after rising to a new high of $23,770.85 last Thursday, with the successive record highs eerily reminiscent of bitcoin’s rally in December 2017 when seemingly every day the coin hit a new high.
But Eric Demuth, CEO and co-founder of cryptocurrency trading app Bitpanda argues this year’s surge is different from 2017’s jaw-dropping rally.
“This run is completely different to the one in 2017,” Demuth said this week. “Back then, the price was driven by mainly retail investors. Now, we additionally have billionaires praising bitcoin and investment funds securing significant positions worth hundreds of millions. The big players that were once very distant from bitcoin and were outspoken critics are now joining in with the run.”
Once such billionaire fund manager is Scott Minerd of Guggenheim Investments, who says bitcoin should be worth $400,000.
“It’s based on the scarcity and relative valuation such as things like gold as a percentage of GDP,” Minerd argued. “So you know, bitcoin actually has a lot of the attributes of gold and at the same time has an unusual value in terms of transactions.”
But this record rally fueled by institutional interest could be about to hit a wall.
That’s according to Miller Tabak chief market strategist Mat Maley who argues that the digital coin’s chart points to a 25% to 30% sell-off that could come early in the new year.
“There’s no question it’s been a melt-up, and it could last a little bit longer,” Maley said. “I think on a short-term basis it could continue a little bit longer, and I’m very bullish on it on a very long-term basis. But intermediate-term, I’m a lot more concerned than I think a lot of other people” are.
Maley says that part of the problem is the excess liquidity in the market, pointing out that sidelined money field the mega-cap tech rally this summer and now that those stocks have stabilized, that money is flowing into bitcoin.
“The problem is it’s now taken the weekly [relative strength] chart on bitcoin to a very, very high level,” Maley continued.
“It’s above 88 [RSI as of Thursday],” Maley said. “That’s not quite up to the 90 level that it reached twice in 2017, but those were followed by declines of 36% and 64%. We’re not quite there yet,… but as the pandemic starts to fade a little bit [and] maybe that liquidity becomes a little less plentiful, [bitcoin] could get clobbered like it has many other times in the past.”
Since 2016, bitcoin has seen 10 declines of at least 20%, seven declines of more than 30%, and four falls of 48% or more. Maley warned investors not to underestimate bitcoin’s history of volatility.
“People need to be careful as we move into the new year,” Maley added. “I love it long term, but I think it’s going to be a much deeper sell-off than the 10%-15% ones we’ve seen more recently. I think you’re going to see 25%-30% easily. Again, I don’t think that really starts until early in the new year, but I do think it’s coming soon… based on this overbought condition and the froth that we’ve seen in this asset class in the last week or two.”