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Goldman Sachs Is Not A Bearish Indicator For The Bitcoin Market

Bitcoin market cap, volume late-2017, USD billion. Source: TradingView

Bitcoin has been on a roller coaster in recent months, Since breaking above $20,000 in mid-December, the flagship crypto has gained to peak at just above $58,000 before correcting by nearly 25% to bottom below $44,000. But, the current bitcoin market is a different animal compared to the late 2017 price action when Goldman Sachs balked at launching its cryptocurrency trading desk.

One popular veteran trader and CEO of proprietary trading company Factor LLC, Peter Brandt, recently gave his thoughts on Goldman Sachs probability or relaunching its crypto desk.

On December 21, 2017, a similar Bloomberg piece highlighted that Goldman Sachs would set up a crypto trading desk, even though the bank was “still trying to work out security issues.”

Though Brandt’s charts appear significant, people need to understand that this speculation had been continuing for several months. Notably, Wall Street Journal already covered Goldman Sachs’ intention to start the service on October 2, 2017.

Even if the exact date is disregarded, Goldman Sachs eventually abandoned these plans to launch its bitcoin (BTC) trading desk. Nonetheless, more importantly, there are not many similarities between the 2017 price surge and the current market in terms of their price and chart structures.

Bitcoin market cap, volume late-2017, USD billion. Source: TradingView

Look at how bitcoin volume surged from a $2 billion average daily volume in November 2017 to reach about $14.6 billion by year-end, representing a seven-fold increase. The growing retail demand was so impressive that it made Bitfinex, Binance, and Bittrex exchanges reject any new users temporarily.

At the time, Binance accounts were sold by the users directly to other users at the time when no new sign-ups were getting accepted. Currently, there is no retail frenzy like it happened in late 2017. The current bull cycle seems to be powered by institutions that appear to be buying bitcoins on every dip.

Bitcoin market cap, volume, USD billion. Source: TradingView
Bitcoin market cap, volume, USD billion. Source: TradingView

In the meantime, the $66 billion daily average traded volume seen on February 22, 2021, as BTC’s market cap peaked at $1.09 trillion, has been relatively flat for the past six weeks.

Hence, an experienced technical analyst like Brandt needed to have added the caveat that volume is the most significant market participation indicator that he frequently insists on in his other analysis.

To settle that difference conclusively, people must understand all the fundamentals of the futures markets. Most derivatives exchanges charge either perpetual futures shorts (sellers) or longs (buyers) a fee after every eight hours to maintain a balanced risk exposure. The indicator, known as the funding rate, will turn positive whenever the longs are the ones that are demanding more leverage.

Bitmex BTC perpetual futures weekly funding rate, late-2017. Source: TradingView
Bitmex BTC perpetual futures weekly funding rate, late-2017. Source: TradingView

As the market charts indicate, the buyers are ready to pay up to 40% every week to leverage their long positions. That is wholly unsustainable and a definite sign of extreme optimism. Any form of market downturn would have resulted in cascading liquidations, with the bitcoin price accelerating to the downside.

BitMEX BTC perpetual futures weekly funding rate. Source: TradingView
BitMEX BTC perpetual futures weekly funding rate. Source: TradingView

These exorbitant rates do not exist anymore and the current 4% weekly funding rate has been the highest since June 2019. But, scales of magnitude lower than the late-2017 outrageous retail-driven long leverage frenzy.

In general, one should factor in that December 2017 marked the launch of CME and CBOE futures contracts. As some media houses published back then:

“This unprecedented event could have a significant impact on the Bitcoin economy.”

This appears to have been the peak euphoria signal that the bears were waiting for. Hence, Goldman Sachs balking might have been the effect and not the cause.

But although Brandt has become famous in the crypto space for projecting the 80%+ correction after the 2017 rally, his track record is now less impressive in recent months.

To sum it all up, no evidence supports Peter Brandt’s theory apart from one event that happened in the 11 years of Bitcoin trading. Furthermore, the 2017 Goldman Sachs crypto trading desk rumors had been continuing for some time.

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