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- TIMESTAMPS -
2:11 Bitcoin and the financial market
5:08 What moves financial markets?
7:50 Long term BTC price movers
12:04 Short term BTC price movers
17:33 Example of BTC price movement
️ Useful Links ️
► Government Bonds: https://www.investopedia.com/terms/g/government-bond.asp
► Growth Stock vs. Value Stock: https://www.investopedia.com/articles/professionals/072415/value-or-grow...
► Number of unique Bitcoin wallets: https://www.blockchain.com/charts/my-wallet-n-users
► 4 year cycle explained (original author): https://youtu.be/ivWdOztDkv4
► Stock to flow model: https://www.lookintobitcoin.com/charts/stock-to-flow-model/
► Coinbase Premium: https://cryptoquant.com/prochart/fdxeih58iv
► Glassnode: https://glassnode.com
► Whale Alert: https://twitter.com/whale_alert
► NUPL Indicator: https://studio.glassnode.com/metrics?a=BTC&category=&m=indicators.NetUnr...
Bitcoin and the financial market
For sake of simplicity, let’s imagine the entire financial market as a pool filled with different assets that you can invest in.
In the shallow end of the pool you’ll find low risk, low reward investments like government bonds.
In the middle part of the financial market pool, you’ll find medium risk, medium reward investments such as “value stocks”.
In the deep end of the financial market pool, you’ll find high risk, high reward investments like Bitcoin.
What moves financial markets?
Investors are constantly trying to maximize rewards while keeping risk at a minimum.
This is why most investors have exposure to assets in all depths of the pool – government bonds, value stocks, growth stocks, and crypto like Bitcoin.
Most investors will periodically adjust their portfolios depending on market stability. If the markets are stable, they make more risky investments. If the market is unstable, they move to safer investments.
Market stability and even growth can be artificially sustained through government stimulus alone. This tends to increase the wealth anyone holding assets like stocks both directly and indirectly.
Long term Bitcoin price movers
Bitcoin itself was designed to do this but has since become more of a store of value than a currency. This is because Bitcoin has a maximum supply of 21 million BTC.
This makes BTC akin to gold, which also has a limited supply. Although new BTC is mined about every 10 minutes, the amount of new BTC being mined is cut in half about every four years.
Assuming demand stays the same, this 50% reduction in supply would lead to a doubling in price roughly every 4 years.
Demand for Bitcoin been increasing gradually over the years, creating a predictable 4-year boom-bust cycle.
Short term Bitcoin price movers
The first factor to look out for is the amount of BTC on cryptocurrency exchanges. The less Bitcoin there is, the easier it is for Bitcoin to move to the upside.
Bitcoin whales are the second factor to keep in mind when analyzing Bitcoin’s short term price action. Whales can move large amounts of cryptocurrency to exchanges, crashing the price when they sell.
The third short term factor in Bitcoin’s price is liquidations on futures exchanges. Exchanges will liquidate overleveraged positions to remain solvent, adding more sell pressure when prices drop.
Example of Bitcoin price movement
Consider the chain of events that followed an announcement like Tesla buying Bitcoin. Existing Bitcoin holders prepare for big leap as the price explodes due to new investors rushing in.
Whales know that the price will not go above a certain amount, so place sell orders slightly below their target. When these sell orders are triggered, the price drops.
This price drop spooks new investors and weak hands, further aggravating the dip. This aggravated dip triggers overleveraged positions to be liquidated, decimating the price.
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies poses considerable risk of loss. The speaker does not guarantee any particular outcome.
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