Sarson Funds Mar 23 . 3 min read

How to Trade Bitcoin During the Quarantine

Executive Summary: Don’t use Bitcoin to play a bounce in crypto, use Ethereum instead.

Cryptocurrency markets fell as much as 45% recently as investors looted their digital wallets to satisfy margin calls and capitalize on steep price declines equity market.  Bitcoin, which still represents 65% of the entire market, is down over 35% from where it had consolidated around $10,000 just 30 days ago.

Given the global liquidity spigots being turned on in response to the crisis one could be forgiven for thinking that higher prices may seem inevitable. Bitcoin and its “anti-fiat” cryptocurrency alternatives were, after all, spawned as a protest to the bailouts and money printing of the last financial crisis.  But there is reason to approach today’s market with caution.

Yes, crypto is cheap, but two popular coins of note – Bitcoin (BTC), Bitcoin Cash (BCH) – are likely to get cheaper and here is why. 

Each coin is only 8 days away from potentially seeing a major influx of supply as the bankruptcy trustee for the infamous Mt. Gox – the OG of crypto hacks, thrice delayed – finally returns to eager sellers 150,000+ Bitcoin and 200,000+ Bitcoin Cash tokens.  These coins have been held in escrow during excruciatingly-slow liquidation proceedings but will soon finally be returned to depositors who have been waiting for 5-long years (since Bitcoin $750) to be returned what was left of their holdings.  At today’s prices, the Bitcoin scheduled to be distributed on March 31st will have a current value of over $1 Billion USD.   

Let’s slow down and say that again:  In 8 days, $1 Billion dollars’ worth of Bitcoin could potentially enter the market.

Should only 25% of claimants decide to sell their Bitcoin – and we believe that more than that will – over $250 million of sell orders for Bitcoin will soon be hitting the market.  Bitcoin’s liquidity starved market cannot digest this volume of sell orders without a negative impact on the price. 

So, what’s an investor looking to capitalize on crypto market dislocation to do?  We suggest, instead of loading up on Bitcoin or an index fund (remember the index is 65% Bitcoin), that you use this opportunity to build a position in the often misunderstood and under-owned original smart contract coin: Ethereum (ETH).

Reasons to Long Ethereum:

Recently, and to little fanfare, the Enterprise Ethereum Alliance grew its already impressive roster of member companies by adding JP Morgan (who is folding in their digital currency project Quorum) and Ernst & Young. They join over 100 other well respected industry leaders such as Intel, BP, Microsoft, UBS, PWC, State Street, AMD, Broadridge, Marsh and McClellan and others who have gone public with their commitment to developing on the Ethereum blockchain.  No other cryptocurrency project has anywhere near this level of coordination and industry commitment.

Beyond the Enterprise Ethereum Alliance and its incredible roster, investors should also expect positive price moves from Ethereum as its development team grabs headlines in the coming months with the launch of Ethereum 2.0.  Ethereum 2.0 is a massive and much anticipated protocol upgrade that will position Ethereum back at the top of the cryptocurrency world in technological capabilities.  It is scheduled to launch in July of 2020, and is expected to put to rest any concerned about Ethereum’s scalability and capabilities.

As far as today’s price as a fair entry point, Ethereum has taken even more damage over the past month than Bitcoin.  During the panic selling of the past few weeks Ethereum has seen its price fall from a high of $280 in late February to around $135, down more than 50% from its recent high and represents bargain in our opinion, especially when compared with higher priced alternatives that face major supply concerns in the near term.

Love Bitcoin Later    

Yes, we still love Bitcoin. Yes, the “halvening” is happening in May and yes, it will be a major positive for the currency as it will reduce new Bitcoin supply to the market by 50%.  We also have every confidence that once the world moves on from COVID-19, central banks (starting with China) will resume the announcing of blockchain-backed digital currencies.  These CBDCs (central bank backed digital currencies) will, by necessity, rely on trading pairs with Bitcoin to facilitate trading compatibility on day one of their launches, taking advantage of the 180+ bitcoin-fiat currency pairs that are already existing worldwide.  The role of Bitcoin in the global economy is real and unchanged – we are not suggesting any love loss for the world’s leading digital asset, we are just suggesting that there is a lot of supply headed into the market and that for those wishing to play a bounce in cryptocurrencies, Ethereum appears to be the more attractive investment vehicle in the near term.