1. Q1 reversal for crypto
- The cryptocurrency ecosystem saw a drastic rebound in Q1 as total market value rebounded from $795 billion in Q4 to almost $1.2 trillion. While encouraging, it needs to be viewed with a healthy dose of humility against its all-time high of $3 trillion reached in November 2021.
- The CoinMetrics Total Market Index of 200 tokens (a proxy for the entire ecosystem) rebounded 59% led by bitcoin’s 72% gain and surging market cap dominance.
- Digital asset equities’ (companies whose primary business supports blockchain related activities) surge this quarter; led by bitcoin mining companies, many of whom own bitcoin as a primary asset.
- The collapse of crypto focused banks Silvergate, Silicon Valley and Signature signify weak business models and risk management practices rather than an indictment on the crypto ecosystem.
2. Q2 outlook
- Markets will eagerly watch as the summer budget showdown looms. This is the second time in bitcoin’s short history that budget negotiations will match the feverish pitch first experienced in the summer of 2011.
- In 2011, bitcoin rallied from $1 to $14 from May to July as the debt ceiling debate ensued. This is less a performance observation as it is a demonstration of bitcoin’s sensitivity to fiscal inflection points as bitcoin believers fear the debasement of the U.S. dollar.
Chart of the month – Next Bitcoin halving in 2024
Bitcoin’s rules dictate that, every 4 years, the quantity of bitcoin created to compensate miners will be cut in half. Only three halvings have occurred in the short history of bitcoin, with the next anticipated to occur in the spring of 2024.
- Anchoring bitcoin’s supply growth as it approaches its 21-million-coin limit is thought to support value due to supply scarcity.
- The year leading up to a bitcoin halving has historically generated positive returns (chart below) while the year after a halving has historically been the best in this loose 4-year cycle.
- Crypto winters have historically occurred in years 2-3, which just concluded for the current cycle.
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Mountain chart showing bitcoin price indexed to 100 over days before bitcion halvling. X axis goes from 0 to 500 and Y axis goes from 365 to 0. Three dates are tracked. The first being 11/28/2012, which where the line progresses from 0 to 447 (over the last 365 days). Second date is 7/9/2016, which goes from 0 to 228 (over the last 365 days). The third date us 5/11/2020, which goes from 0 to 124 (over the last 365 days).