Retail investors and whales have been handling bitcoin differently … Matt McCall’s perspective … the $288,000 prediction
Let’s say you’re interested in investing in a specific asset but you’re not sure how to play it so you decide to follow someone else’s lead.
Whose lead should you follow?
Thousands of small investors who were investing no more than a few hundred or few thousand dollars each?
Or, a handful of big-dollar “whale” investors who were investing minimally $10M, some up to $50 million?
I’m going to guess you’d choose to follow the whales.
After all, logic suggests that the whales had to be financially savvy enough to amass their huge wealth in the first place. So, one could argue that the same intelligence or access to information that helped them become rich is now informing them about investing in this specific class.
Also, the whales’ willingness to throw huge dollar figures into this asset class seems to be a significant vote of confidence in the future of the asset.
You could even go with a negative argument — namely, that countless studies show that the average small-guy investor underperforms the market, year-in-year-out. So, following thousands of them probably isn’t the best way to grow wealthy.
Well, recent data suggest there’s been a sharp divergence in how small investors and whales have been investing in bitcoin in recent months.
And if you believe in the concept that the “big money” is often the “smart money,” then you have yet another reason to be bullish on bitcoin and the crypto world today.
Let’s get into the details.
***”Wait and see” versus “buying at a discount”
Recently, OKEx Insights collaborated with blockchain analytics company, Catallact, to study bitcoin transaction data from January through the beginning of August.
In short, they found that small-guy retail investors mostly pulled back on buying during the year’s market weakness. Instead, they took a “wait and see” strategy.
This was different than larger investors — many of which were likely institutions — who took the opportunity to accumulate more bitcoin as prices fell.
This follows a timeworn investment pattern …
When prices are going up, excitement draws retail investors in. They buy as prices rise, driven by excitement and the expectation of more gains.
But when prices fall, retail investors tend to either sell out of fear, or not take advantage of the lower prices by adding to their position.
Unfortunately, “buying high” and “selling low” is not the recipe for wealth creation.
***To see what this looks like in recent months with bitcoin, below, we show a chart from Catallact
The black line is bitcoin’s price from January through August 1. The blue jagged line shows bitcoin transactions of less than one-tenth of a bitcoin (these small purchases are attributable to retail investors, not whales, who buy multiple entire bitcoins per transaction).
What you’re going to see are retail purchases that oscillate in near lock-step with the price of bitcoin.
Retail transactions … make up the bulk of BTC movement and more closely track price fluctuations.
These investors tend to be more easily “‘shaken out’ of the market in times of high volatility and dramatic price declines,” the report noted, which is exactly what the researchers found …
Medium transactions, attributed to miners and larger retail players, were more cautious at the pandemic’s onset. But it seemed this behavior lasted only until June when activity picked up again.
It’s when the data moves to track transactions over 1,000 BTC that becomes interesting.
As BTC approach $10,000, the number of transactions between 1,000 and 5,000 BTC continued to go up since the end of June even as the price began to consolidate.
Bitcoin’s August consolidation gave way to another bout of weakness at the start of September, as the crypto fell back down into the $10,300 range.
So, if you’re a crypto investor, you have a choice to make as you see this …
Is this weakness something to fear … or a discount to welcome?
***Taking advantage of lower prices while you can
I’ll just say this flat out …
This could be the last time we see the world’s largest cryptocurrency at prices this cheap.
I can’t guarantee that, of course, but it would not surprise me at all.
That quote comes from our crypto specialist, Matt McCall.
For readers less familiar, in his Ultimate Crypto service, Matt recommends elite altcoins. Altcoins are simply “alternative” cryptocurrencies beyond the granddaddy cryptocurrency, bitcoin.
Back to Matt:
Less than a month ago, bitcoin hit a 52-week high above $12,300 following a blistering surge from below $9,000 in late June — a 38% rally in less than two months! Now it’s taking a breather as investors lock in gains.
Bitcoin’s smaller peers, known as altcoins (alternatives to bitcoin), have also pulled back …
Regular readers may get sick of me saying this, but it’s my job: Pullbacks happen. They happen in stocks, in cryptos, and in any other tradeable asset.
But returning to the top of this Digest, a question emerges …
If you’re a crypto investor, will this pullback frighten you into inaction? Or will you see it as an opportunity to add to your portfolio at lower prices?
Here’s Matt’s take:
I’ll get right to the point.
Bitcoin is ridiculously cheap right now. I’ve been adding to my own portfolio throughout the pullback.
And yes, the long-term outlook for massive growth and profits in bitcoin and altcoins is as bullish as ever.
***It’s not just about massive growth, it’s about protecting your current wealth
In his recent MoneyWire update, Matt spoke to cryptos’ role as a wealth hedge — incredibly important in today’s environment of mass currency-printing.
Back to Matt:
As governments around the world pump money into their economies, the greater supply automatically puts pressure on traditional currencies.
Cryptos are a fantastic hedge because nobody can manipulate their production. Bitcoin and other select altcoins have a fixed supply written into their code. That makes them an excellent store of value.
Matt isn’t the only crypto specialist who holds this view.
“PlanB” is the crypto analyst behind the popular and widely-referenced stock-to-flow Bitcoin model. He recently said “(Bitcoin) is the solution, the hedge, against all this crazy debasement and quantitative easing.”
As to PlanB’s stock-to-flow Bitcoin model, it’s predicting nothing short of a bitcoin explosion …
The model predicts Bitcoin hitting near $288,000 per coin by the time its next halving arrives in 2024. That would mean gains of roughly 2,500% from today’s price.
Below, you can see the model superimposed against bitcoin’s price.
What’s interesting as you look at this chart is that bitcoin’s big gains typically aren’t smooth and even. There appears to be periods of steep growth, followed by periods of sideways consolidation.
This type of market action rewards those who have their money invested, and who accumulate more during the consolidation periods … like the whales we profiled earlier.
***While bitcoin’s future is bright, Matt is even more bullish on altcoins
Despite that bullishness, you need to be careful when investing in the altcoin space. They are not all created equal.
Back to Matt:
This is not a rising tide that lifts all boats, so choosing the best positioned altcoins is critical. To help us identify the strongest altcoins, my research team and I created the “MAG System.”
Our comprehensive system researches and analyzes 10 critical attributes of every altcoin (similar to how we’d analyze the fundamentals of a stock), scores them on each, and then produces an overall ranking.
Matt’s MAG system is doing its job. Even with the pullback in bitcoin and altcoins, the average gain of Matt’s 11 altcoins is 97% as I write Wednesday morning.
As we wrap up, I can’t tell you where bitcoin’s price is going to be tomorrow, or where Matt’s elite altcoins will be.
But their longer-term future holds the potential for huge gains, so it’s worth examining how each of us views periods of weakness and consolidation.
Here’s Matt with the final word:
So yes, yes, and yes. I see this as a big buying opportunity in bitcoin — I’ve been buying more myself — and in some of the best-positioned altcoins …
But you don’t want to wait. It’s only a matter of time before prices power their way higher — and $10,000 bitcoin will be but a memory.
Have a good evening,