The Practical Islamic Finance Podcast
The Practical Islamic Finance Podcast
One Data Point To Worry About
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One Data Point To Worry About
In this episode, we will cover the following points:
- Overview of recent Bitcoin network trends and market cycle position.
- Analysis of recent price movements and drawdowns post-halving.
- Comparison of drawdowns in the current cycle with previous cycles.
- Examination of unrealized profit levels and their implications.
- Discussion on Bitcoin realized cap and its significance.
- Exploration of market indicators like NVRVZ score and Pi cycle top indicator.
- Insight into global liquidity conditions and potential catalysts for Bitcoin and risk assets.
- Reflection on Bitcoin's image and the importance of approachability.
- Summary of historical data reliability and implications for current cycle trends.
- Q&A session addressing viewer questions and comments.
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salam@practicalislamicfinance.com
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Our podcast is about helping people ethically build wealth. We cover a broad range of topics including stock and crypto investing, product reviews, and general financial well-being.
DISCLAIMER
Anything you hear in this video is an opinion. It is not personalized financial advice. Make sure you do your due diligence before making any investment decisions.
As-salamu alaykum everyone, I hope you are doing well. It's been a while since I've gone here live and the reason is I have been under the weather. I've had the flu and it is true what a wise man once said which is that childbirth without an epidural is the closest a woman will ever get to understanding the pain of a man with a cold. So luckily I'm feeling better now and good enough to go live again. So happy to be back here with you guys. Today I want to go over what we're seeing on the Bitcoin network, where we are in this cycle and a bit of a concerning sign that we as of late, admittedly it's quite subjective. However, we'll go over all of that. So without further ado, let's get started. As always, this is not financial advice, so be sure to do your own due diligence before making any investing decisions. So let's just retrace our steps and see where we are right now. So we had the 11% post having dip. A lot of people were expecting that we would have a dip and indeed we did. Now from the peak, we've dipped around 20%, although it's only been a dip of 11% at its max peak, that is at the max point of the drawdown since the halving. But now we've recovered and we're pretty much at where we were at the halving. Nothing really out of the ordinary here. And if we are to mimic what we did in the previous halvings, we should have another month maybe of choppiness. So moving sideways with a slight downwards drift. And then after that month is where things start to get exciting and things start to head north again. That being said, we have broken in a lot of ways previous trends. For example, prior to this halving, we broke last time's all-time highs, which is not something that we typically do. So we may see a divergence from this pattern in a, I think, not too material way. Now, if we look at the drawdowns that we've experienced this cycle, we compare them to previous cycles, they've been relatively muted. They've been relatively on the smaller side. So if you look at a max drawdown of a 20%, as I mentioned from our all-time highs, compare that to a max drawdown of 63% in the last cycle or 36% in the cycle before that, or 71% in the cycle before that, you can see that we've essentially avoided any large drawdowns this cycle. And you know, 20%, I'll take that compared to what we've experienced previously. Now, in terms of unrealized profit, we are no longer in the danger zone. So typically the all-time highs of previous cycles were associated with unrealized profit of around 70% of the market cap, and now we're down to 50%. So we're no longer in that danger zone. So here, what you can interpret this as, and here I'm referring to the blue line, you see it kind of is flirting with the edge between that orange and yellow area on the graph that represents the unrealized profit here. And we're close to 50%, as I mentioned, and we're well off the sort of euphoria or greed levels that we typically break into in previous cycles when we've reached all-time highs. Now, the Bitcoin realized cap is close to previous highs. So realized cap is basically what people paid for the Bitcoin they have. And this is a function of new money coming into Bitcoin at these prices that are approaching previous all-time highs, and at one point exceeded previous all-time highs. And so in terms of realized cap, we're close to the peak that we saw in the last cycle. Now, if you compare that to something like Ethereum, so this kind of tells us that there's a lot of new money coming into Bitcoin. If you compare this with something like Ethereum, it really has experienced very weak capital inflows. So with Ethereum, you're well off of last cycle's all-time highs in terms of realized cap. Now, the most reliable data point for determining when we reach an all-time high for Bitcoin is the NVRVZ score. So that compares the market value with the realized value. And typically with previous all-time highs, we've broken into that 7-8 range. But right now, we are back down to 2. So we're in, I think, a safe area as far as that is concerned. Another top indicator that I haven't spoken about on this channel before is the Pi cycle top indicator. And that looks at the 111-day moving average and it compares it to twice the 350-day moving average. Typically, the 111-day moving average has acted as support for the price. And this has worked quite well this cycle. So the 111-day moving average is around$58,000. And that's around the level that we bounced off of in our most recent drawdown. And the twice 350-day moving average is around $80,000. So that tells you the price that if you want to play this cycle, the price at which you should start maybe taking some profits. And right now, we're closer to the bottom than we are to the top by a pretty wide margin. And so that kind of tells you if you're thinking, is this a good time to get in or not? I think this is a pretty good time to do so. But as always, I will say the general concept is the dollar cost average. And we may have another month of choppiness, again, with a downward drift. But probably we're, as I mentioned, closer to the bottom than we are to the top. And therefore, picking up some tokens at these prices I find to be a pretty good probability investment, a good risk-reward profile. That being said, and even though I said that, I know that people are going to be more eager to ask me whether or not now is a good time to buy when things start picking up again than they are right now. Although this is exactly the opposite of the type of mentality you should have. You should be more eager to buy when things are looking less exciting than you are when people start getting excited. Now, all of this and we still have this catalyst in our back pocket, which we are waiting on, which has to do with global liquidity. So if you look at the 2020 cycle and the halving and the post-halving environment, it was an environment of increasing liquidity. And we really haven't had that in terms of global liquidity. We've actually seen that number coming down. And despite all that, and probably because of the ETFs, the performance has actually exceeded the performance in previous cycles in terms of reaching its all-time highs before the halving as opposed to after the halving, which typically is what happens. So if we do see some easing in global liquidity conditions and interest rates coming down, this could act as a big catalyst for Bitcoin and risk assets generally. Now, we are seeing signs that the economy is slowing down. And when you look at previous inflation numbers, we did see that, yes, the inflation prints were hotter than expected. However, if you drill down into those numbers, a good portion of the number last time was auto insurance. I can't really see a scenario where auto insurance continues to increase at that rate for too long. So I think I would not be surprised if we start getting more cooler inflation numbers. And I think the market will take those cooler inflation numbers and translate them into higher probabilities of rate cuts. And this could lead us to a market rally. So there are some reasons to be optimistic about Bitcoin and from Bitcoin, risk assets generally. Now, there was a sort of subjective metric that kind of, as opposed to the data that I just went over, which is all bullish, is less bullish. And this is an anecdote. It's not something objective. But recently in my alma mater, Ohio State, they had a speaker come in and he started talking about Bitcoin and the virtues of Bitcoin and buying Bitcoin. And he was booed when he started talking about that. And I do think that this is sort of indicative of a somewhat of an image problem that Bitcoin has. No offense to anyone, but a lot of Bitcoin maxis can be quite off-putting with the way that they approach the topic and with the way they talk about Bitcoin. And a lot of them have made Bitcoin almost into a cult. And this tends to push people away from the asset. And so I think that the boos that this speaker got when he started talking about Bitcoin from the young crowd that was graduating at Ohio State, and by the way, Ohio State in the United States is probably the largest student body in the country. So it's somewhat a good sample for what a wider group of people are thinking. And so I think that if you are an advocate for Bitcoin, being a lot more friendly and humble in the way that you advocate for the token is probably a good idea because no one wants to be part of a pompous movement or a movement that is just too sure of itself. And a lot of times the coiners come off like that. And this is not going to be a reason for Bitcoin to not succeed as an asset. I do think it will succeed as an asset and it will likely, as it has already, it will likely exceed most people's expectations. That being said, I think it could do a lot better if its image was a bit more affable, something like a Dogecoin, which is something that I always talk about. Dogecoin, which has virtually the same code as Bitcoin. It's a fork of Litecoin, which is a fork of Bitcoin. I wonder if this speaker mentioned Dogecoin, if he would have gotten instead of boos, maybe laughs from the crowd and perhaps some cheering. So yeah, I think Dogecoin in terms of brand and affability is beating out Bitcoin in that respect. So conclusion, historically reliable data. So data that has been reliable if we look at their historical performance. So this is not to say necessarily that this is what's going to happen in the future, although I think probably the best indicators that we have about the future, they do suggest that Bitcoin is not at cycle peak and we're on schedule in terms of price. So there's nothing really here that I find to be concerning. So for people who are bullish about Bitcoin a month ago, I don't think you should be any less bullish now. I think actually we're on schedule, but we may have another month of choppiness ahead. Again, there may be a downward drift there absent any catalyst. Potential Bitcoin catalysts and risk assets generally include a cooling in the inflation number that we get, which I don't see as a remote possibility. It's actually quite likely. And of course, just to tease the Bitcoin maxis that like to watch Dogecoin for the win. With that being said, do subscribe, become a PIF member if you'd like to follow our portfolios move for move. And with that, let's take some questions. Walaikum salam. Hope everyone is doing well. Thanks Yousef. Do you think SUI and near protocol is a good investment? I just find Solana to be better in terms of the traction and performance and almost everything else. There may be certain periods where these assets outperform Solana, but I think over the life of the current cycle, Solana will probably outperform. Brother, thank you for the well wishes. Will you be considering making an Islamic mortgage alternative video perhaps? Inshallah. Does the SEC notice the Robinhood means anything to crypto? Oh, so the good question, Rashad. So the SEC did send Robinhood a Wells notice basically saying, hey, we're watching you, which is never a comfortable thing to receive from the SEC. That being said, I think that the SEC is right to deem a lot of cryptos as securities. Many of them don't qualify as commodities. But if you want to be on the safe side, what the SEC has implicitly accepted as a commodity is Bitcoin on account of the regulatory approvals it has received in terms of the ETFs and the derivatives that you can now trade Bitcoin through. And so forks of Bitcoin, like Litecoin, like Dogecoin, should be safe from any adverse SEC action. So to the extent that the SEC starts clamping down on cryptos that are not Bitcoin, this could be bullish for Bitcoin and derivatives of Bitcoin. So investor paradox, interest in an asset goes up with the price. Yeah, that's true with assets like Bitcoin, not true with all assets. Most people don't like discounted investment, but in everything else. Yeah, that's true. It's very true. Well, thank you. I appreciate the well wishes. We are still early. Doge prediction. So I went over my evaluation for Doge this cycle in a previous video. And I think if I'm recalling correctly, my most probable outcome for this cycle is somewhere in the 40s for Dogecoin price. But I do see a sort of a tail outcome. So in the middle of the curve would be the 40 cent price. At the right end of the tail would be something around between 90 and a dollar. So 90 cents and a dollar. That would be an outlier outcome, although I think it's possible. So in terms of short term prediction, there's really no way to predict the short term. So I'll leave that one alone. All right. Thank you all for tuning in. I'm really happy to be back. And I hope you enjoyed this live. Leave a like if you did. Until next time, make sure to take care of yourself. Assalamualaikum and peace be upon you all.