Bitcoin Just Got Squeezed

What's up, Gr? It's guys here. So we got to talk about what's happening with bitcoin because out of nowhere, throughout the last week, it started going parabolic. In a few days, the entire landscape was turned upside down from several new announcements, rumors, and price targets that could now suggest the beginning of a new bull market, which could eventually push the price all the way up to 5 million, following the prediction of what's called the stock-to-flow model. I'll explain shortly for anyone who wants to follow along. Yes, I acknowledge that was way too long of a sentence, but seriously, bitcoin increased in price more than 30% the last week. It was able to break the $30,000 resistance. That means the next price target of $45,000 is quickly approaching.

To top it all off, a library book was just finally returned to Sheffield Cathedral after 300 years. So, we got to talk about exactly what's going on: the four reasons behind bitcoin's recent price surge, whether or not it signals a new trajectory for the entire market, and then finally how the stock-to-flow model has accurately predicted bitcoin's price, and now they say $5 million could be a reality in the future.

But before we start, I want to say a huge thank you to the sponsor of today's video. That would be Elizabeth Warren! Just kidding, I should have warned you that I don't have the best jokes. Okay, that was bad. I'll stop. But seriously, this video is not sponsored, and if you appreciate all the information that goes into it, it would mean a lot to me if you destroy the like button for the YouTube algorithm. It's totally free, it takes you just a split second, and as a thank you for doing that, here's a cute picture of a baby alligator! So thank you guys so much, and now with that said, let's begin.

As the background, these last few months have been incredibly eventful for bitcoin. In the last year, it rallied from $7,300 to over $63,000, fed by institutional buying. It became the best performing asset of 2020 and was quickly on track to reach $100,000 while the cryptocurrency brokerage Coinbase hit a $100 billion valuation before its public IPO. But just as quickly as things went up, they started going back down through a series of unexpected events.

First, Elon Musk announced that Tesla would no longer be accepting bitcoin as payment due to environmental concerns, and they would be looking for other possible alternatives that would be more energy-efficient for the economy. Second, China came out with a statement banning financial institutions from conducting business with cryptocurrency and warning investors against speculative trading. Third, concerns started to surface again about the stablecoin Tether, with the founder of Ethereum calling it a ticking time bomb. Fourth, that price decline created a pattern known as a death cross, which occurs when the 50-day moving average crosses below the 200-day moving average signaling that bitcoin could enter a market similar to what happened in 2018.

Finally, fifth, we have people like Michael Burry calling crypto and meme stocks a speculative bubble and that the mother of all crashes is coming, along with Elizabeth Warren strongly pushing for more crypto regulation from the SEC. But now, things are beginning to change, and as the price starts to recover, people are beginning to wonder just how long and how high this rally can continue to go.

Well, in terms of what's behind this recent 30% price surge, we got four main reasons. The first is a lot of people are talking about is the recent rumor that Amazon is soon going to be accepting bitcoin as payment. This all started about a week ago when Amazon posted a job listing for a digital currency and blockchain product lead, which inspired people to believe that maybe Amazon is looking to integrate bitcoin within its entire ecosystem. If that happens, that could be huge. Like, Amazon is the fourth largest company by market cap in the entire world. Over 82% of U.S. households have Amazon Prime, and they post nearly $1 million worth of revenue every minute, leaving a lot of opportunity for cryptocurrency to fit within that system.

But of course, after all of this speculation started ramping up about Amazon's intentions, they came out with an official statement denying that the e-commerce giant was looking to accept bitcoin payments by the end of the year, with emphasis on "by the end of the year." That leaves a lot of rumors out there that Amazon could start accepting payments technically after the end of the year, or maybe they just plan to integrate some level of cryptocurrency on their platform, which on a broad scale would be really good for the entire market.

Second, Elon Musk confirmed that Tesla could start accepting bitcoin as payment for their cars again. He said that statement during a bitcoin conference with Jack Dorsey and Cathie Wood while they discussed their overall sentiment and plans for the future in terms of cryptocurrency. Throughout the meeting, Elon Musk revealed quite a few details, including the fact that he personally holds bitcoin, his privately held company SpaceX also holds bitcoin, and that Tesla still holds its bitcoin in reserves.

Now, like I mentioned previously, Tesla abruptly suspended bitcoin payments over concerns about its impact on the environment, but now he's said that the network's energy usage is improving and Tesla is doing some more due diligence on this. But Tesla would most likely resume accepting bitcoin for payments. Now, even though I don't personally expect that people are going to be rushing out to buy Teslas with bitcoin or that it's going to make any meaningful impact on revenue, it does serve as an endorsement that if Tesla is doing it, then others should too, and that should further boost the confidence for bitcoin.

The third reason is that price momentum is causing a secondary reaction by squeezing short sellers, causing them to cover their positions by buying the underlying bitcoin and then causing the price to quickly go parabolic. For anyone confused, here's how it works: just like you're able to go and buy bitcoin with hopes of it going up in price and you making a profit, short sellers, on the other hand, could bet that the price of bitcoin is going down, and the further it falls, the more money they make.

However, in this case, a series of good news and rumors sent the price of bitcoin even higher, and when short sellers want to exit their position and stop the losses, they have to buy the very investment they shorted, causing the price to go up even more. And that's where things get interesting. That's because the higher the price goes, the more short sellers want to exit their positions, which causes the price to go up even more, which causes short sellers to have to exit their positions, and before you know it, that leads to a 20% increase in price in a relatively short period of time.

Now, as far as how much was shorted, according to data from SK, nearly $800 million in bitcoin short positions were liquidated on Sunday evening. Other data showed that more than $771 million in bitcoin positions had been liquidated in the 12 hours ending at midnight Eastern on Monday, with nearly $721 million coming from short covering. Some analysts say that this was the real reason why bitcoin surged in price so quickly since Amazon integration would likely take quite some time.

Regardless, the entire situation then set up the scene for number four: the end of what's known as the death cross. Like I mentioned, this is a trading pattern that occurs when the 50-day moving average crosses below the 200-day moving average, signaling that bitcoin could enter a market similar to what we saw in 2018 when the entire market dropped about 90% in price. Well, when this recently happened a month ago, there was a lot of concern that this was a bearish signal and that the price could continue falling further. But a recent analysis found that historically the death cross occurs near lows, and that could have actually signaled the bottom of the market where you could have done really well had you bought in.

That leads some to think that now the price of bitcoin could retrace back to its $100,000 price. Others who follow the stock-to-flow model believe that the price could eventually wind up at $5 million. Which, come on, we got to talk about that now! This is a concept that was first brought to my attention by André Jick, who posted a 14-minute video explaining exactly how it works and how historically this has been a fairly accurate predictor of price, which is why when it potentially shows a $5 million price target in the future, we should look into it further.

I'll link to his video down below in the description, although I will be honest, I watched this video twice, which explains this entire concept in great detail, and I was still confused with exactly how it's calculated and how that translates into the price. So I dove into the topic even further to understand exactly how it works.

Here's what I found: the pricing model was created by the Twitter user Plan B, who claims to be a Dutch institutional investor with a legal and quantitative finance background. His calculation takes into account how much supply is on the market and how much new supply is entering circulation. In other words, how much is for sale and how much is being created. Gold, for example, has a ratio of 66, meaning it's going to take 66 years for enough gold to be mined to recreate the amount that's currently in supply today. To simplify it even further, if 244 tons of gold have been mined, it'll take another 66 years to double that amount.

In bitcoin's case, the fewer coins in circulation combined with the increased mining difficulty should make it a consistent scarce commodity, and therefore the price is expected to continue rising exponentially because over time the mining difficulty increases. So far, up until now, this pricing model seems to be fairly accurate, and the creator of this method says that we're on track to reach $288,000 by 2024 and then potentially over a million by the end of 2026. Recently, it was even said that bitcoin was the most undervalued it's been in over a decade according to that metric.

This makes a lot of people wonder: is this a good time to buy or is this model fundamentally flawed? Well, the creator of Ethereum says this model is flawed and that in the short term, analysts can say whatever they want to make this theory look correct. Other analysts say that it's short-sighted to believe the price of an asset is entirely dependent on how rare it is versus how much new supply is coming on the market. Instead, there are so many other factors that have just as much of an influence on the price. To prove this, he included a price chart of gold with respect to its stock-to-flow ratio, and as you can see, the ratio has very little effect long-term on predicting the market cap of gold, leading him to believe that this model is better used for marketing than it is for accuracy.

But either way, since there's no accurate strategy to consistently and accurately predict the price of bitcoin, models like this, in my opinion, certainly have some merit, but they should also be taken in context with other analyses as well. So even though so far it has followed a consistent price target that puts it at a $5 million valuation in the future, it's yet to be seen whether or not it will be trading at its predicted floor of $47,000 by the end of August.

So far, what I think about this as a non-expert who's just obsessed with all things personal finance, investing, and making money, I have to say I think it's all fairly positive news. The more research I do on this, the more bullish I am long-term on bitcoin. In fact, I think this is the only asset that has consistently exceeded my expectations the more I learn about it. It's for that reason that I have consistently been buying in on a regular basis. My entire strategy is just to dollar-cost average into bitcoin as often as I can, with the expectation of holding it long-term regardless of what the price is at.

That doesn't mean I'm going all-in with everything, but it does mean that I've allocated 5% of my entire portfolio to cryptocurrency. Then while I'm holding it, I just throw it into BlockFi because they're paying me a higher interest rate than what I'm getting from a bank. That way, at least I'm making some extra money for something I was just planning to hold onto anyway. For anyone looking to do the same, feel free to use my link down below in the description and you could get up to $250 with a free bitcoin when you sign up and make a deposit at BlockFi.com.

Besides that, though, I'm really not changing my overall strategy. I still believe this could be incredibly volatile in the short term. Anything could happen—more regulation and restriction is going to continue to be a day-to-day risk. It's important to stick with a small portion of your portfolio that you're comfortable with and then just stay with it. I think over time we will see companies like Amazon embracing cryptocurrency, and I think it's just a natural part of their progression while they continue expanding. Who knows exactly when that's going to happen, but it just wouldn't surprise me.

Now, as far as this next $5 million price target, it's said that these next six months are really going to test the stock-to-flow model to see how accurate it is because it tends to skew to the upside. But I think just relying on one metric to predict the price is incredibly risky, and it's better to take everything into consideration with an open mind, with money that you're willing to risk. Then no matter what happens in the short term, just continue to hold on to it and smash the like button for the YouTube algorithm.

So with that said, you guys, thank you so much for watching. I really appreciate it. Make sure to destroy the subscribe button and the notification bell. Also, feel free to add me on Instagram. I post pretty much daily, so if you want to be a part of it there, feel free to add me there. As for my second channel, the Gr Stepan Show, I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that. Thank you so much for watching, and until next time!