Analyst Report: Q4 2021
Cody Garrison | 10/1/2021
Heading into Q4 we find it nearly impossible to be bearish. Despite near-term shakiness, our bullish thesis remains firmly intact that a strong Q4 could be looming on the backs on further institutional and retail inflows.
At the time of writing, Bitcoin (BTC) trades at $47,020, Ethereum (ETH) at $3,200 and Solana (SOL), a Layer-1 competitor to emerge as one of our teams favorite Ethereum alternatives across DeFi and NFTs, at $154 — all bouncing between key support levels.
This report will explore what we can expect to see in Q4 and how investors can navigate the imminent volatility.
Bullish on Bitcoin
This summer, in the depths of the multi-month correction, we published some interesting charts highlighting the surprisingly cyclical nature of the crypto markets and how this market cycle could mimic that of 2013. While the vast majority of those currently trading in the space were not here in 2013, historical action has been shown to give us a look at what to expect in the future. While history may not repeat itself, it certainly rhymes.
We highlighted that Bitcoin has only seen one intra-bull market correction of 50%+ in its history, and a number of factors led us to believe that the stars could be aligning for a repeat of 2013. If this is true, Bitcoin will not only break through it’s current all time highs in Q4, but extend it’s gains into new price discovery!
We come to this conclusion for a number of reasons:
We did not experience the same exuberant, FOMO-induced, retail-led, blow-off-the-top rally that we saw at the end of 2017, going into 2018. This, in hindsight, was a clear indicator of froth in the market, that the hype had simply outgrown the maturity of the market— an indicator we simply do not see today. In fact, some data suggest that retail investors have largely sat out the 16 month rally in comparison to 2017 while expansive infrastructure continued to be rapidly built and scaled across multiple blockchains in DeFi and NFTs [outside of Bitcoin].
‘Whales’, or individuals wallets holding > 1,000 BTC ($47,020,000) have always been a great indicator of where the market is heading. These “smart money” entities have the resources, human capital and liquidity at their disposal to make much more informed and market moving trades than the average retail investors. On-chain data continues to show these entities buying heavily into any recent weakness, with their addresses trending towards their highest aggregate holdings since May. In addition, Bitcoin volume held by long-term holders (individual addresses who’ve held for > 5 months) reached an all-time high earlier today of 80% of the total available supply. This shows us long-term convicted holders are accumulating — the same cohort that would historically be selling aggressively into bear markets.
With data showing retail participants largely sitting out the late summer recovery rally from $28k - $47k. It begs the question - who has been buying? We believe a number of large corporate institutions such as Fortune 500 companies, banks, and hedge funds and countries, along with high net worth individuals have been accumulating heavily. Having a fiduciary responsibility to their investors to disclose risk, a number of these institutions will likely make announcements in Q4 of their previous quarters investments — we believe a number of which will mention Bitcoin, driving further legitimacy to the investment for the media to report and the masses to “follow the smart money” into the investment.
Google Trends: searches for “How to buy Bitcoin”
Q4 has historically been an extremely bullish period for Bitcoin and the broader market during a macro adoption cycle — and this is exactly where we find ourselves today.
Q4 2013 - 600%
October 1, 2013 : Bitcoin (BTC) price: $115
January 1, 2014 : Bitcoin (BTC) price: $800
Cycle peaked on December 3, 2013 at $1,150 (900% increase from October 1)
Q4 2017 - 240%
October 1, 2017 : Bitcoin (BTC) price: $4,410
January 1, 2018 : Bitcoin (BTC) price: $15,000
Cycle peaked on December 15, 2013 at $19,500 (340% increase from October 1)
NFTs Cool Down
NFTs are red hot right now and many believe they have no sign of slowing down. We have mainstream media openly discussing the role of the metaverse in both the social and work environments, and some of the largest bigtech companies in the world such as Facebook dedicating billions to growing the space. It’s an exciting time to be invested in the components that will exist and provide unique identity in this digital world — NFTs being the most popular way to play for investors right now.
While we don’t want to rain on the NFT parade, we believe a functional metaverse, and the use cases for NFT’s beyond social media profile pictures is sparce right now and perhaps years away from fully coming to fruition. However, valuations on OpenSea continue to surge.
We beilive it’s possible that a resurgence in Bitcoin, Ethereum and the traditional cryptocurrency ecosystem could suck the liquidity out of NFTs as investors attempt to capture flow their capital into surging coins.
When you look at the more traditional cryptocurrency market vs the burgeoning NFT market, you’ll notice an inverse relationship in price movement. As traditional crypto experienced a broad sell-off in May through the summer, NFTs experienced their largest adoption cycle to date with millions of people buying jpegs ranging from jungle animals, to pixelated faces, to AI-generated art for millions of dollars. Event legendary art broker Sotheby’s got involved. Retail investors likely took their gains from 2020 into 2021 and piled them into NFTs with no desire to enter the sinking crypto market.
Predictions / Takeaways
Bitcoin (BTC) breaks it’s all-time high of $64,000 in Q4 and surpasses the $80,000 threshold — a 70% move higher from it’s current price, driven by institutional, geo-political, and retail adoption.
Ethereum (ETH) breaks it’s current all-time high of $4,300 and surpasses $6,800 — a 100% move higher from it’s current price, driven by the broadening adoption of DeFi.
Solana (SOL) breaks it’s current all-time high of $212 and surpasses $500 — a near 140% move higher from it’s current price, driven by strong growth in it’s own emerging DeFi and NFT ecosystem, and solidifying itself as Ethereum’s top competitor.
Alternative Layer-1 blockchains continue to emerge and capture market share as their own DeFi and NFT ecosystem’s emerge — Polkadot (DOT), Avalache (AVAX) (LUNA)
Crypto-adjacent stocks will be a great investment in Q4 for investors who want to gain exposure to the space through their traditional brokerage account without holding Bitcoin or other cryptocurrencies directly.
The market can trend a number of ways over the course of the next three months, and the next couple weeks in particular will be very telling in which way it heads.
We believe the market sees a more long term, sustained bull market into 2022 where Bitcoin break it’s all-time high and top out in the $70-80k range going into the new year, before consolidating sideways for a while, and then resuming it’s growth over $100k in mid-late Q1 2022.
Blockworks ‘Market Wrap’ 9/27/2021 - Original quote from Clearblock
Another possibility from our perspective, although less likely, sees Bitcoin entering a parabolic growth phase like we saw in 2017, driven by retail traders piling into the asset on a FOMO trade. We think the market would dump aggressively into the new year as people take profit off the irrational move higher.
A more bearish and what we believe to be the least likely scenario for Bitcoin and subsequently the broader crypto markets, would be a breakdown before we reach new all time highs, leading to months longer consolidation or a full on bear market.
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The views above are the opinions of the author and Clearblock Insights. They are not to be taken as investment advice.
[Disclosure: Clearblock employees own both BTC, ETH, SOL, DOT and AVAX each mentioned above][Sources: CoinGecko; Glassnode]
