IBIT: Bitcoin Bear Market Begins As Excess Liquidity Dries Up

One of the major themes in my research this year has been the negative trends facing the cryptocurrency market. In May, I became bearish on the crypto broker Coinbase (COIN) after bulging around early 2023; it has lost ~26% of its value.

KanawatTH's analysis suggests that the Bitcoin ETF (NASDAQ:IBIT) may face further declines due to Bitcoin's lack of functional economic purpose and its sensitivity to changes in individual investor cash allocations.

KanawatTH prefers IBIT over ProShares BITO due to its direct investment in Bitcoin compared to BITO's indirect exposure through futures, which creates forced realization or profits paid in dividends and is less tax efficient. IBIT also has a lower expense ratio (25 bps) than BITO (95 bps), which is further reduced to 12 bps as IBIT seeks to expand its AUM.

However, KanawatTH is bearish on Bitcoin and expects IBIT to experience significant declines, which may not be fully recovered. They highlight Bitcoin's high transaction costs (ranging from $0.40 to over $100), slow transaction times (currently around 90 minutes), and staggering power consumption (around 700 KWH per transaction).

They also note Bitcoin's lack of privacy, with publicly available transactions, and its increasing exposure to government regulations, with most brokers now reporting to the government for tax purposes.

KanawatTH believes that other cryptocurrencies could be viable alternative currencies due to Bitcoin's outdated code and transaction issues, which some argue are solved by the lightning network. However, they suggest that a similar system could be applied to gold or silver to address both transaction and store of value problems, which Bitcoin lacks.

KanawatTH's analysis shows that IBIT has no notable correlation with traditional inflation hedges (UUP, TLT, TIP, GLD, SLV) but has a significant correlation with the stock market (SPY). They conclude that Bitcoin is not a hedge against inflation, currency risk, or interest rates and should fall if stocks crash.

Finally, KanawatTH observes a positive correlation between Bitcoin (IBIT) and changes in the US monetary base, which some may interpret as Bitcoin having hedge potential. However, KanawatTH believes it is because sharp rises to the monetary base fuel excess financial market liquidity.

When market liquidity is too high, such as during immense Fed QE periods, stocks become expensive, and many people look to park money in niche assets like Bitcoin. They note that silver is strongly correlated to the monetary base and retains its value even when the base is not changing.

They conclude that Bitcoin is a store of excess retail liquidity, which is evident in its performance during QE periods, rising when the monetary base grows and often declining once QE ends.

The above is the detailed content of IBIT: Bitcoin Bear Market Begins As Excess Liquidity Dries Up. For more information, please follow other related articles on the PHP Chinese website!