Bitcoin: Know When to HODL, When to FODL

“Bitcoin now less volatile than stocks” was a popular headline in crypto circles late last month. As the S&P 500 fell by 10% from October 1st through the 29th, bitcoin was only down 3.5%. During the final week of October, which was brutal to stock investors, bitcoin was basically unchanged.

That was then, but now is different. Starting about 4:00 am on Wednesday (US eastern time), bitcoin started to slide. The first 10% of the downdraft was quick, taking just 9 hours. By Thursday morning, bitcoin was 15% lower than where it was 2 days before. So much for being more stable than stocks…

Here’s another way bitcoin looks like US equities: when it catches a cold the rest of the virtual currency market gets pneumonia. That’s mostly because bitcoin dominates crypto currencies, with $97 billion in assets and 53% of the total value in the space. Think of bitcoin as all 5 FAANG stocks rolled into one – it is that important to the industry.

To give you a sense of the moves, here are the 2-day price changes for bitcoin and the next 4 largest cryptos over the last 48 hours (through 7pm Thursday):

• Bitcoin: now down 11.3%.

• XRP/Ripple ($19 billion market cap): now down 5.1%, but at its worst down 15% - just like bitcoin.

• Ethereum ($18 billion market cap): now down 12.7%, at its worst down 17.0%.

• Bitcoin Cash ($7 billion market cap): now down 18%, basically sitting on its recent lows.

• Stellar ($4 billion market cap): now down 4%, at its worst down 14%.

Keep in mind that all these assets are down 70-85% from their January highs. Which reminds us of the old stock research interview question: “How many days can a stock decline by 10%?” The answer isn’t 10, of course. It is infinity.

We were not surprised by this move, and regular readers know why: we religiously track 2 indicators for global attention around bitcoin as a proxy for general interest in crypto. Here they are, and what they are saying currently:

• Google Search Trends: online searches for “bitcoin” are 93% lower than the peak in late December. [su_spacer] Even with bitcoin’s resilience last month, search volumes were unchanged, a troubling sign in its own right. There has been a flurry of activity around the recent volatility, but not (we suspect) in a “good way”. More likely these were holders wondering what just happened. Not fresh buyers.

• Bitcoin wallet growth in October was just 3%. That is slower than the 3-month average of 3.7% and a far cry from last December’s 10.5% growth.

To borrow from Kenny Rogers, you “Have to know when to HODL, know when to FODL”. The former is crypto-speak for “Hold on for dear life”, a buy and hold maxim that worked very well until 2018. We don’t think volatility has left the crypto stage, as the last 48 hours show.

All that said, we will close out on a more hopeful note. We believe bitcoin is going through a technological “winter”. That is the period of time in between an initial growth/enthusiasm phase for a new technology and its eventual mass adoption. Think of US tech stocks after the dot com bubble as an easy example. We don’t know what will push bitcoin around the corner. But given its first mover advantage and proven base technology, it should at some point start to work again.

In the meantime, we will keep monitoring our indicators and let you know how they develop.