Pantera Capital CEO Dan Morehead is now calling for a new bull cycle as Bitcoin price moves towards $60,000 after recovering from the June low that was just under $29,000.
“We had a period of temporary insanity,” wrote Morehead in this month’s note to investors, pointing to China banning cryptocurrency mining and trading that had a negative impact along with the debate on the environmental impact of Proof-of-Work consensus mechanism, adding, “now we’re in a new bull market.”
Already up more than 30% in October, Bitcoin price is currently only 13% away from its all-time high of nearly $65,000. The market is hopeful of a strong performance this quarter, with Q4 being historically a bullish month.
According to Morehead, the deep bear markets where we experienced drawdowns of over 80% may be a thing of the past, and future bear markets will now be “shallower.”
“As the market becomes broader, more valuable, and more institutional, the amplitude of price swings will moderate.”
But at the same time, we won’t be seeing any more of the 100x-in-a-year rallies either, he added.
The Bear Catalyst
While Morehead is confident in the second round of the bull cycle, he warned of a potential bear catalyst in the form of the launch of the Bitcoin exchange-traded fund (ETF).
As we reported, the market is highly hopeful that the US Securities and Exchange Commission (SEC) will finally approve a Bitcoin Futures ETF this month. SEC Chair Gensler has also been hinting at a possible futures-based ETF for months.
This could be why Bitcoin futures on the regulated exchange CME is trading at a much higher price than other exchanges. The CME bitcoin futures basis increasing at a faster rate suggests that institutional investors are buying BTC futures that can further put upward pressure on the crypto asset and lead to an even steeper curve.
Interestingly, as NYDIG pointed out, the number of contracts that a participant such as an ETF can own on the CME is also raised to a total of 6,000 starting October 18th. The decision on the first ETF filed by ProShares falls on the same day.
If SEC says nothing on this, the ETF “will be free to launch on 10/18 as the 75 days req will have passed,” said Eric Balchunas, Senior ETF Analyst for Bloomberg. “No news is prob good news at this point,” he added.
Meanwhile, to Morehead, this approval could turn out to be a ‘Buy the rumor, sell the fact’ much like two other past events.
Will History Repeat Itself?
The Pantera Capital CEO pointed to the launch of Bitcoin futures on CME in December 2017 and Coinbase going public via a direct listing in April this year as examples. The market rallied 2,440% the first time and 822% the second time but resulted in an 83% and 53% bear market, respectively.
The same can happen when Bitcoin ETF gets approved, said Morehead as he concluded:
“Will someone please remind the day before the Bitcoin ETF officially launches? I might want to take some chips off the table.”
Trader @SplitCapital, however, is not of the same opinion as he argued that the CME futures launch came at a time when the market was “coming off of the most frothy period in crypto history,” and funding rates were at 30% for short-dated futures. Similarly, during Coinbase’s IPO, there was the most amount of bitcoin openly traded in history.
This time, however, financing rates are averaging below 15%, open value is at record lows, and we have a renewed macro tailwind in the form of fiscal and monetary policy, which means this is not a classic ‘sell the news’ event, and “this time really is different.”