We will not opine here on whether Coinbase shares are currently a good investment, but we are very confident that its listing will ultimately be positive for the emerging digital asset ecosystem. It will increase liquidity and bolster retail and institutional confidence. Financial advisors need to prepare for more frequent inquiries about Coinbase, Bitcoin and other digital assets from their clients, even those completely new to the space.
FIGURE 1: BITCOIN 7 DAY PRICE
There were 2 primary reasons for the most recent sell-off this past week:
- For Americans, it was President Joe Biden announcing that he would seek to raise the capital gains tax from 20% to 39.6%, sparking the obvious fear in investors about paying more of their bitcoin gains to the government. While the market initially responded negatively, we believe this was an overdone reaction, given how tenuous the Democrats’ control over the Senate remains – the most likely outcome is a tax package that is less dramatic.
- On the global front, there have been reports that the head of the Turkish exchange Thodex is missing, possibly having taken $2 billion worth of investors’ funds with him, highlighting the need for crypto investors to have their digital assets stored in a safe place, such as a third-party, qualified custodian.
This latest sell-off was preceded by another one the previous weekend, which was characterized by very different events:
- Near-term profit-taking that led to an unprecedented amount of $5 billion worth of leveraged long positions being liquidated within a 24-hour period from exchanges such as Binance, BitMex and others
- Unsubstantiated regulatory concerns being posted on Twitter
- A major blackout in China leading to bitcoin miners going offline
- Coinbase IPO euphoria and initial selloff
We believe this onslaught of negative news has caused the market to be oversold. One fundamental metric that many bitcoin investors look at is SOPR (Spent Output Profit Ratio), which measures if bitcoin investors are selling at a profit or loss on average. At the moment, the SOPR indicator is near 1.00, indicating that bitcoin is close to (or is) oversold and we should see increased buying pressure over the next 10 days.
FIGURE 2: SOPR RATIO
The bitcoin price has gained momentum into the week and could provide an attractive entry point for anyone considering an investment in bitcoin for the following reasons:
- Even though the Biden team made the announcement of the proposed tax hikes, there is a long way to go before this becomes law in an evenly divided Senate.
- Sophisticated investors are buying this dip and institutional interest continues to grow leading to increased demand for bitcoin. Just this morning JPMorgan announced it will launch a bitcoin offering to their private wealth clients.
The bitcoin price has gained momentum into the week and could provide an attractive entry point for anyone considering an investment in bitcoin for the following reasons:
About Eaglebrook Advisors
Eaglebrook Advisors provides independent financial advisors with streamlined, secure, and compliant access to bitcoin and digital assets. The firm has created the first bitcoin and digital asset separately managed accounts (SMAs), which are designed to seamlessly integrate with an advisor’s current portfolio management and reporting systems and workflows. Eaglebrook’s investment products allow advisors to directly add bitcoin and other digital assets to model portfolios and include this asset class in their overall asset allocation strategies and in clients’ financial plans.
For more information, please visit www.eaglebrookadvisors.com and follow us on LinkedIn.
