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May 5, 2021
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Hi Everyone,

As we progress throughout this monster bull run, people have been asking with increasing frequency "where's the top?"

Virtually every client and journalist I've spoken with lately has asked some form of this question.

It's come up in nearly every chat group and twitter space, every interview and podcast (Here's the latest one with Rice TVx), and with good reason.

People are making lots of money, and they want to take their profits before the party ends.

The anonymous analyst Plan B has put together some rather influential predictions mapping out a four-year bitcoin cycle revolving around the halvening event, the type of cycle that has played out to a T throughout bitcoin's short history.

The problem is that past performance does not indicate future results. Just because bitcoin has entered a bear market approximately 18 months after the halvening twice before, that doesn't mean it will necessarily do so in the future. 
Markets trends tend to change when there is a specific catalyst. In February 2014, that catalyst was the implosion of Mt. Gox.

Many have pointed to the introduction of bitcoin futures on the Chicago Board Options Exchange (CBOE) as the catalyst for the top in December 2017.

Though bitcoin's Wall Street debut was indeed a notable event, the timing of the top in my mind is more coincidental, as the CBOE futures contracts were cash-settled, and therefore trading them, even with large volumes, does not have much impact on price.
The catalyst

Yesterday, Treasury Secretary Janet Yellen, who previously served as chair of the Federal Reserve, sent shivers throughout the financial markets by saying...
Well, perhaps this didn't have a huge impact on the economy, but it's quite clear that financial markets are overheating at this time.

Even though Yellen does not have any direct impact on interest rates in her current position, her opinion on this matter was taken very seriously by market participants, and risk assets saw a swift decline after she made this statement, including bitcoin.

In our opinion, it was Yellen's attempt to normalize monetary policy, raising interest rates and winding down the Fed's balance sheets in late 2017, which ended up causing the decline in risk assets that year.

In this graph from analyst Pedro Febrero, almost a year ago today, we can see the effects of Quantitative Easing (blue) and Quantitative Tightening (red) on the price of bitcoin.
The rest is history of course, and the Fed's efforts to flood the economy with money have been redoubled by fiscal policy from the U.S. federal government.

"QE 4ever" continues to this day and we all know how that has affected bitcoin.
Then and now

From yesterday until today, the markets seem to have developed acute amnesia.

The Dow Jones Industrial Average managed to recover by end of day, and it ended Tuesday slightly in the green. 

Yellen's comments are by now a mere side note in financial media. After all, she's not the decision-maker when it comes to setting benchmark rates, merely someone in the know who is stating the obvious. Eventually rates will need to rise. 

Federal Reserve Chair Jerome Powell, also known as J-POW, is now in charge, and he remains dovish, ready to support the economy (read: markets) no matter what by keeping interest rates artificially low for as long as he can and continuing to provide QE as much as he can get away with on a monthly basis. 

So, to answer today's question, in my humble opinion, the party will continue for as long as the fundamentals stay the same.

Excess capital tends to benefit risk assets, and even though we'll likely see pullbacks along the way, it would be very difficult to imagine a bear market given the current economic backdrop.

However, to me, "when top?" is actually the wrong question entirely.

We could never pretend to predict the timing or scale of any potential blow-off top, so why try?

As investors, we need only look around. Are we in a bull market or a bear market?

If prices are climbing, then we can feel more free to take risky bets, in a diversified and cautious way of course, and even apply some leverage.

Once we're in a bear market, it should become rather apparent. Steady declines day-by-day and week-by-week are a good indication, likely following a shift in the above dynamics.

When that happens, we hunker down. Selling for dollars may not be prudent, but at least consolidating our portfolios, reducing leverage and seeking out the less risky areas of the market would be wise. 

It may sound complicated, but it really isn't. Wishing you a pleasant day ahead.

Best regards,








Mati Greenspan
Analysis, Advisory, Money Management