Where next for bitcoin? Lessons from the Past and Predictions for the Future

Analyzing the 'Buy the Rumour, Sell the News' Phenomenon in Bitcoin's ETF Launch

The bitcoin ETFs are finally trading and, just as we thought, they have proved a classic case of buy the rumour, sell the news.

Bitcoin rallied sharply going into the event, going from $25,000 last summer, when rumours began to spread that the ETF was going to happen, to a high of $49,000 around the time of the launch. Then it started to sell off. Today we are at $39,000, 20% off the highs.

Today, with some help from my buddy Charlie Morris and his amazing volatility measures, we ask: how low does bitcoin go? And for how long?

(See this footnote¹ if you need to know what an ETF is).

The obvious parallel

As we have noted before, the obvious parallels are with the gold and silver ETFs which launched back in the noughties. They were both huge deals for the precious metals at the time, just as the ETF today is for bitcoin, generating a lot of publicity and enabling a lot of new capital to enter the market.

The gold ETF, GLD, launched on November 18, 2004, fairly early in that amazing bull market between 2001 and 2011. (Indeed the ETF was a large contributing factor).

Here is that bull market along with the bear market which followed, ending in late 2015. Talk about a clear uptrend.

If we zoom in, you can see that, while gold rallied 25% (almost $90/oz) in the lead up to the launch of the ETF, and for a few days after, substantial falls soon followed.

Overall, from high to low, gold fell (a perfectly rideable) 10%, going just below $460/oz to just above $410.

It then range-traded for 9 months, eventually breaking out to new highs in September 2005.

Here’s the thing though. Bitcoin is more volatile than gold, three to four times more volatile, according to Charlie. He has a point: while gold fell 10%, bitcoin is already down 20%.

How much lower does it go?