The bad news bears are coming for Bitcoin. The largest cryptoasset fell below the $9,000 level Friday as investors digested the implications of a major platform glitch, heavier regulatory scrutiny, and the potential liquidation of $1.7 billion worth of Bitcoin by Mt. Gox, a now defunct exchange. Fundstrat’s index for measuring investor sentiment is consequently signaling “misery.”
The Bitcoin Investment Trust (GBTC) is down about 5%.
But that’s a good contrarian signal, says Tom Lee, Fundstrat’s head of research. The last four times Fundstrat’s framework for measuring investor sentiment, the Bitcoin Misery Index (BMI), was this low — September 2011, November 2012, January 2015, and September 2016 — Bitcoin performed well in the following 12 months. “The BMI is telling us to keep the negative headlines in perspective — when the BMI is at a “misery” level, future returns are very good,” Lee wrote in a report published Friday.
Of all the above-mentioned potential disasters beating up on Bitcoin, the Mt. Gox liquidation is the one to watch. On Wednesday, Mt. Gox trustee Nobuaki Kobayashi made public a creditor report (here, but in Japanese) showing the sale of some $405 million worth of Bitcoin in the last few months. Kobayashi also indicated that additional selling could be coming, which begs the question: How much of the roughly $1.7 billion of Bitcoin that Mt. Gox is sitting on will flood the market?
Lee told Barron’s that the Mt. Gox liquidation, depending on the magnitude, could be painful in the short term, even more so than the regulatory action. However, Lee also thinks that some of that money will eventually make its way back to Bitcoin. “It’s a short-term concern, but it doesn’t change anything,” says Lee. He is still targeting Bitcoin at $20,000 by the middle of this year.