With Ethereum following the 2013-2017 Bitcoin price rally with uncanny similarity and higher historic volatility due to a lower market cap, I believe $20,000 Ethereum within the next 6 months is a very real possibility. However, regulatory headwinds and smart contract competitors are factors that may prevent this from happening.
Why do I focus on Bitcoin price cycle indicators in an Ethereum article? Because the Bitcoin price cycle is the crypto price cycle. The first chart below shows the 60-day correlation between Bitcoin and Ethereum since 2018. This metric tends to remain above the 0.7 level and has not dipped below 0.5 in three years. The assets are almost perfectly correlated. The second chart shows long-term price movements in Bitcoin, Ethereum, and a popular altcoin, ChainLink. All digital assets follow Bitcoin’s stock-to-flow model without any fundamental reason for doing so. Ethereum and ChainLink do not have Bitcoin's halving model. This correlation may break one day, but for now, it is clear. Bitcoin is the rising tide that lifts all boats.
(Source: Author; charts.coinmetrics.io)
(Source: Ibid.)
I have a target end date for this crypto bull market cycle between December 2021 and March 2022. I also still believe that Bitcoin will reach six figures per coin in that time period. Analyzing the technical indicators mentioned above and on-chain indicators for exchange flows, liquid supply, and long-term versus short-term holders will give insight into market conditions. I do not subscribe to the supercycle thesis which claims that Bitcoin will not enter a bear market due to institutional adoption, especially given the fact that crypto already witnessed a 50%+ correction earlier this year. Even though I am very bullish on Bitcoin over the next 3-6 months, I believe Ethereum should outperform during this period.
Why Ethereum Should Outperform
Firstly, Ethereum is more volatile than Bitcoin due to its smaller market cap. In an average year, Ethereum’s standard deviation of annualized returns will be 10% higher than Bitcoin’s according to the CFTC. Historically, Ethereum has outperformed Bitcoin during bull markets and underperformed during bear markets. I do not believe that will change this cycle.
Raoul Pal of Global Macro Investor and Real Vision is credited with noting the eerie similarity between the current Ethereum price and the Bitcoin price cycle of 2013-2017. The framework is simple and the chart speaks for itself. Ethereum is one market cycle behind Bitcoin. If this framework holds true, Ethereum could reach a cycle high of roughly $19,683.
This framework has Ethereum outperforming even the most optimistic Bitcoin price targets. PlanB’s stock-to-flow cross asset model has a Bitcoin target price of $288,000 by cycle end. This constitutes a 4.36x increase from current prices. Pal’s Ethereum model constitutes a 4.77x increase and matches the CFTCs study regarding a 10% volatility difference. Even though I personally believe that these price targets are overly optimistic, my base case is Ethereum quadrupling by the end of March 2022.
Conclusion
The crypto market is entering the exuberant stage of the four-year price cycle. Now is not the time to take leverage given the likelihood of sharp, double-digit pullbacks. However, it is also not the time to sell early. If this plays out similar to previous price cycles, I believe Ethereum will near $20,000 in the next 3-6 months.
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