Crypto: ‘We’re seeing two very different bitcoin worlds’ in the market, strategist says

Genesis Trading Head of Market Insights Noelle Acheson joins Yahoo Finance Live to discuss bitcoin's price move and the factors influencing the cryptocurrency market.

Video transcript

- Well, it's not just stocks that rallied back this afternoon. Bitcoin prices are back above $37,000 after falling below $34,000 for the first time since July earlier today. Our next guest joins us to break this down. Noelle Acheson is Genesis Trading of market insights and joins us now. Noel, you pointed out that Bitcoin's 30 day correlation with the S&P 500 has continued to increase, and just recently reached the highest level since July. Whereas, Bitcoin's correlation with gold is now only about 15%.

For investors, what does this mean in terms of how to use Bitcoin in a portfolio and balance out risks from other investments?

NOELLE ACHESON: That's a really good question, Emily, and hi, great to be with you. I do have to say that everything I say is my opinion, not that of my employers. And of course, as usual, nothing I say is investment advice. But that question, Emily, the difference between the correlation of Bitcoin with the S&P 500 and the correlation with gold when Bitcoin is supposed to be digital gold, comes to the very crux of what we're seeing in the market.

We're seeing two very different Bitcoin worlds. The price moves that we've been seeing over the past few weeks are macro driven. Investors are treating Bitcoin as a risk asset. But here's the thing. All of the selling, or most of the selling, is coming from short term holders. In other words, traders, short term retail perhaps that don't have a high conviction, but also macro investors that are treating Bitcoin as a risk asset, other cryptocurrencies as well. Therefore, it behaves like one when they are running to safety.

This does not take away from the fact that there's still a lot of accumulation going on. Long term holders have been accumulating Bitcoin steadily for months now. 75% of Bitcoin is held in what are known as illiquid addresses. The amount of Bitcoin that hasn't moved in over a year is almost 60%. And those are the holders. The majority of Bitcoin out there belongs to holders who do see Bitcoin as a longer term store of value who do see it as digital gold. Only that's not what is moving the price. Therefore, that's not what we see in the correlations.

ADAM SHAPIRO: So as we catch our breath and we try to slow down to see what's actually happening here, you pointed out that there's a metric that those in the crypto world would probably understand very well. But help us who aren't necessarily at your level understand what spent output profit ratio means when it comes to Bitcoin in particular.

NOELLE ACHESON: I love this number. Because I'm a total nerd. And the fact that we get to see data on chain in a transparent fashion that gives us deep insight into investor sentiment and behavior, this is something that investors in traditional assets when they understand this, I mean, you literally can see their heads explode. SOPR, now that you're asking about, Adam, is a metric that tells us whether investors are selling at a profit or at a loss. And this is really exciting. It can be split into long term holders and short term holders.

Long term holders, when they're selling, they're selling at a profit. Short term holders, no surprise, they are selling at a loss. And the loss at which they are willing to sell is increasing. This is a signal of what we would call capitulation, which is also a sign that support is on its way.

- I'm wondering as we take a look at Bitcoin prices today, as I was mentioning in my intro, they are up during the afternoon trading. But they are still down by essentially half from their November highs. I'm wondering what does sentiment actually look like among traders right now? And what do you think that indicates about the near-term price action we should be expecting?

NOELLE ACHESON: That's a very good question. Any kind of rally we'll take it. Let's face it. This relief rally that we're getting is indeed very good news. But stepping back a bit, too soon to tell. We could see the short term sellers that I was just referring to take this brief rally as a sign. Yay, now I can get out of even more at a slightly higher price had I continued to sell lower.

It could be the turnaround. I have mentioned also that support has been building. But to be honest, as long as there is so much uncertainty overhang in the market and as long as markets generally are waiting to see what comes out of the FOMC meeting on Wednesday, as well as what's going to happen to inflation, not to mention economic growth in the leading economies, I think we're in for some choppy times.

ADAM SHAPIRO: Why would those long term holders who are sitting on their crypto assets not have taken what we witness-- because it's always trading-- take an advantage of the lows we saw? Wasn't this an ideal time to jump in, especially if you're a long term player in this?

NOELLE ACHESON: We're seeing that. We are seeing long term holders, according to the on-chain data, continue their accumulation. There was a very, very slight dip over the weekend, but minuscule. We're seeing long term holding continue. It's been increasing steadily for the past few months. And this does signal conviction from those that fully understand the potential.

- What catalysts do you think Bitcoin or other cryptocurrencies investors should really be looking for this year? Because it seems like some of the known unknowns at least are coming from Fed policy, coming from regulation, coming from potentially geopolitical and other regulatory risks outside of the US. Where are you seeing some of the catalysts that investors should be watching?

NOELLE ACHESON: Well, aside from what all investors in all types of assets are waiting for, crypto-specific catalysts, I would say, would be greater regulatory certainty. Regulatory uncertainty is often cited by institutions as one of the biggest barriers to more investment for the moment. So anything that points to greater regulatory certainty, such as the rumors of an executive order that might be coming down from the president's office over the next few days, could, again, we don't know what's going to contain, but if it points towards greater regulatory clarity over this year from the various agencies, then that could be taken as very good news for the crypto ecosystem overall.

ADAM SHAPIRO: One last thought on all of this. When we look at crypto, there are more affordable, like Solana, crypto assets that we could be purchasing. And yet, all the attention is Bitcoin. That didn't turn around today. Solana is trading down right now. Any explanation for those of us who don't have quite the cash to go buy a $36,000 Bitcoin, but want to look at those more affordable assets?

NOELLE ACHESON: I love that question. It speaks to one of the biggest differences, Adam, that we're seeing in the market between now and last time we had a 50% drawdown from all time highs. And that is the diversity of the market.

Now, sure they're more affordable. But in the end, you know, it's not necessarily what you buy. It's what you pay. There's different fundamentals. All of the different assets that you see in the top 20 of the market cap rankings now have different fundamentals, different use cases, different technologies even.

Three years ago, four years ago, the last time we were in a bear market, there was Bitcoin. And if you felt really daring then perhaps Ethereum. That's not the case anymore. Now the market is diverse. That in itself gives it a certain degree of resilience, a large degree of resilience really, and also makes it a much more interesting proposition for any type of investor to find a thesis that he or she identifies with and then invest in the new technology that the tokens in this industry represent.

So why is Bitcoin outperforming some of the smaller cap stocks? Because it is more liquid in my opinion. It is easier to get in and out of. That's why it tends to fall by less when things are falling, tends to rise by more when things are rising. But that can turn very fast. The smaller assets, they are more volatile. They tend to move more sharply in either direction.

But meanwhile, we have a lot of growth, a lot of fundamentals, revenue even, and total value locked on smart contracts in some of these blockchains that are changing the whole valuation proposition of this industry.