June 16, 2023
Greg Cipolaro

Research Weekly - What Comes Next?


  • With prices languishing since the start of 2Q, we look at past cycles to inform what may come next for bitcoin.
  • Regulatory activity, which doesn’t implicate bitcoin, has been highly topical, but the outcome of recent cases will likely take several years to be known.
  • As we look for catalysts to drive prices in the future, past cycles indicate things need to quiet down, such as the unresolved stresses on the banking system before there is stability in the market.

The Road Ahead

A lot has changed in the digital asset landscape since the end of the first quarter. While the first quarter for bitcoin was marked by stellar returns driven by declining confidence in the US banking system, the reverse has been true in the second quarter. Underwhelming market performance was largely caused by actions from financial regulators across the digital asset industry. Bitcoin is still up 53.6% on a year-to-date basis, but 2023 has been a year of two halves thus far. Frustratingly for some bitcoin investors, bitcoin has underperformed other risk assets in 2Q, such as equities, unlike bitcoin’s impressive performance in 1Q. With that backdrop, we thought it might be helpful to look at past cycles and how they may inform our view on bitcoin’s future performance. Past performance is no guarantee of future outcomes, but unlike any other technical revolution we have studied or experienced, this one appears to exhibit clearer repeating patterns.

Regulatory Overhang

Without a doubt, the most important events of 2Q center around actions taken by US financial regulators against some of the industry’s largest service providers. The SEC’s case against Coinbase and the CFTC and SEC cases against Binance have been the most important in our opinion, although we are quick to point out that neither implicate bitcoin nor call its regulatory status into question. If anything, the cases underscore the fact that bitcoin is the digital asset with the greatest regulatory clarity, while the classification of many other digital assets are in doubt. These cases will likely take several years to resolve, and barring any new legislation, we may not know how their impact on the industry for quite some time. The Ripple litigation with the SEC, for example, has been ongoing for 2.5 years and is still unresolved. Although there may be some announcement on the case soon, appeals could continue to extend final clarity on the matter well into the future. We don’t know what other actions may come from regulators or law enforcement, so our suggestion is to judge the price reaction function to the news to understand what the market has anticipated. For example, after a shallow initial dip on the news of the SEC suit against Coinbase, bitcoin’s price retraced the entire move and rallied higher, a signal to us that investor positioning had already accounted for this news. “Climbing a wall of worry,” an old market adage, may very well apply here.

Shades of 2019

The two-sided performance that defined 2023 thus far is a bit reminiscent of 2019. For those new to the industry, performance in 2018 was very much like 2022, with a massive drawdown following the bull market peaks in 2017 and 2021. Prices bottomed in December of 2018 at nearly $3,200 and then proceeded to rise precipitously through the first half of 2019, hitting nearly $14,000 at the end of June. From trough to the June peak, bitcoin rose 328%. At first, there was little fundamental to ascribe to the rise, but a narrative emerged around a weakening Yuan and the desire for China-based investors to preserve their wealth through bitcoin. But the second half of 2019 was very much the opposite of the first half, with bitcoin falling nearly 50% to $7,100. Bitcoin still ended the year up 90.9% for 2019, but the path to get there was less than straightforward. The most important thing about 2019 though, and one we thinks holds for bitcoin today, is that it marked the first year of a new bull market that lasted through 2021.

Weekly 1-Jun-16-2023-03-55-53-0681-PM

Re-Underwriting Bitcoin

In the wake of the drawdowns of 2014 and 2018, digital asset investors coalesced around bitcoin as the digital asset with the greatest product-market fit. Ethereum did not exist in 2014 and was reeling from the ICO hangover in 2018, while the utility of many other altcoins was very much in question in 2014 and 2018. As a result, bitcoin’s dominance, its share of total industry market cap, rose both during the drawdown as altcoins fell further and in the early and middle phases of the ensuing bull market cycles. It wasn’t until the latter phases of the bull market, the most speculative part, that bitcoin began to cede dominance to higher beta altcoins. This phenomenon is one we are seeing again this cycle, but things may play out differently. Because of the regulatory uncertainty cast over many altcoins, one not shared by bitcoin, bitcoin could take more share of the industry this time around.

Weekly 2-Jun-16-2023-03-56-17-9232-PM

All Quiet on the Search and Social Media Front

The crypto community is a social bunch, with conversations occurring on social media platforms like Twitter. The volume of “bitcoin” mentions on these platforms is often an indicator of market sentiment, with the number of mentions positively correlated with price. The same is true for Google searches, with the number of searches positively correlated with price. Google Trends, not an absolute measure of searches but an index where 100 is the highest number historically, shows a marked decline in the searches for “bitcoin.” Searches have not yet fallen to the level of the last cycle, implying that things may need to quiet down still, or that perhaps we’ve reached a higher floor than before. The highs in searches never reached the peak of the prior cycle, but that just might mean that the public has more general awareness of the asset. Regardless, if we were to construct an active strategy around this information, it’s to sell bitcoin when it’s a highly discussed and searched for topic, and to buy when it’s not talked about or searched for.

Weekly 3-Jun-16-2023-03-56-32-2234-PM

Banking Crisis Subdued, But Maybe Not Over

It has been a month and a half since the last big event in the regional bank crisis, the closure of First Republic Bank and the acquisition of its asset by JP Morgan Chase. While that event, which occurred on May 1st, coincided with a substantial drop in the aggregate draws on the Fed’s supportive credit facilities, primary credit through the discount window, and the newly created Bank Term Funding Program, banks continue to increase their draws on supportive measures provided by the Fed. Rumblings about the health of various regional bank seem to have died down for now, comments from Fed Chair Powell this week indicate that we are in store for future rate increases, which have been at the root cause of the regional banking crisis.

Weekly 4-Jun-16-2023-03-56-43-2147-PM

Final Thoughts

Things will likely need to quiet down both on the regulatory and social front before stability is put in the market. Market bottoms are often formed in apathy rather than aversion and given some of the indicators we have highlighted, it appears to be the direction markets are headed. 2023 is shaping up to look a lot like 2019, which was the first year in a three-year bull market that peaked in 2021. Again, there’s no guarantee that will happen in the future, but while the events of the recent cycle have looked very different than prior ones, the shape and duration of cycle continue to bear eerily similar characteristics.

Market Update

Weekly Markets-Jun-16-2023-03-50-39-4410-PM

Bitcoin fell 4.2% on the week, a byproduct of the regulatory uncertainty that has gripped the industry, even though it is not focused on bitcoin. Equities continue their tear as the Fed declined to hike rates this week and inflation came in slightly better than expected. The S&P 500 rose 3.1% while the Nasdaq Composite rose 4.1%. Gold and oil both struggled on the week, with gold down 0.3% and oil down 0.9%. Real yields were mixed on the week, while inflation expectations ticked up slightly.

Important News This Week


Bitcoin Tightens Grip on Crypto Market as Traders Shun Altcoins - Bloomberg

Blackrock Files for iShares Spot Bitcoin ETP - SEC

Tether Wobbles as Curve 3Pool Becomes Imbalanced - The Block

Delio and Haru Pause Withdrawals on High Yield Crypto Platform - Bloomberg

Regulation and Taxation:

HSBC & StanChart Pressed by HK Regulator to Take on Crypto Clients - FT

How North Korea’s Hacker Army Stole $3 Billion in Crypto - WSJ

Cryptocurrency Mining Pools and Money Laundering - Chainalysis

Miami's 'Bitcoin Mayor' Will Challenge Donald Trump for US President - Decrypt

What You Need to Know About the Poster Child for Crypto Compliance - Decrypt


BitGo Signs Letter of Intent to Acquire Prime Trust - BitGo

Expanding to the UK - a16z Crypto

Why Binance Tells Staff Not to Talk About its Offices - The Block

Abra is Insolvent According to State Securities Regulator - Texas SSB

Tether on FOIL and Continued Commitment to Transparency - Tether


Bitcoin Miners Use A Lot Less Energy Than Previously Thought - Coin Metrics

What are are Recursive Inscriptions? - Twitter

Upcoming Events

June 30 - CME expiry

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