Peter Brandt, a veteran popular broker and CEO of the proprietary trading firm Factor LLC, recently gave his opinion on the possibility of Goldman Sachs restarting its cryptocurrency table.
We veterans have learned that always @GoldmanSachs enter a niche market, it’s time to save your money. $ BTC pic.twitter.com/tHfRkS4igb
– Peter Brandt (@PeterLBrandt) March 1, 2021
On December 21, 2017, a similar article by Bloomberg stated that Goldman Sachs would open a cryptocurrency trading desk, although the bank “was still trying to solve security problems”.
Although Brandt’s chart seems significant, it must be understood that this speculation had been going on for a few months. The Wall Street Journal has already covered Goldman Sachs’ intention to do so on October 2, 2017.
Even if we disregard the exact date, Goldman Sachs has apparently abandoned these plans to launch its Bitcoin trading desk (BTC). But more importantly, there are not many similarities between the 2017 bull run and the current market in terms of structure.
Notice how the volume of BTC skyrocketed from an average daily volume of $ 2 billion in November 2017 to $ 14.6 billion at the end of the year, an increase of seven times. The retail demand received was so impressive that it caused the Binance, Bitfinex and Bittrex exchanges to temporarily reject new users.
Binance accounts were even sold by users directly to other users at the time when no new registration was being accepted. In other words, there is currently no retail frenzy in Bitcoin similar to what happened in late 2017. In fact, the current bullish cycle appears to be driven by institutions that are apparently catching BTC with each dip.
Meanwhile, the average daily trading volume of $ 66 billion seen on February 22, 2021, when Bitcoin’s market capitalization peaked at $ 1.09 trillion, has been relatively stable for the previous six weeks.
Therefore, an experienced technical analyst like Brandt should have added the caveat that volume is the most relevant indicator of market share (which he often emphasizes in his other analyzes).
To resolve this difference once and for all, you need to understand the fundamentals of futures markets. Derivative exchanges charge a perpetual long-term (buyers) or short-sale (sellers) fee every eight hours to maintain a balanced exposure to risk. This indicator, known as the financing rate, will be positive when those purchased are the ones that demand the most leverage.
As the chart above indicates, buyers were willing to pay up to 40% per week to leverage their long positions. This is totally unsustainable and a sign of extreme optimism. Any slowdown in the market would have caused cascading liquidations, with the BTC price accelerating to the downside.
These outrageous rates no longer exist, although the current 4% weekly financing rate has been the highest since June 2019. However, scales of magnitude are smaller than the outrageous long-term frenzy driven by retail.
Finally, it should be taken into account that December 2017 marked the launch of CME and CBOE futures contracts. As Cointelegraph astutely put it then: “This unprecedented event could have a significant impact on the Bitcoin economy. In retrospect, this seems to have been the sign of euphoria that the bears were waiting for. Therefore, Goldman Sachs’ setback was probably the effect, not the cause.
But while Brandt has become well known in the cryptocurrency space for anticipating the 80% + correction after the 2017 Bitcoin price spike, his track record has been less impressive lately.
So, to sum up, there is no evidence to support Peter Brandt’s theory, other than a single event that happened once in 11 years of Bitcoin trading. Not to mention that rumors from the Goldman Sachs cryptocurrency trading desk in 2017 had been going on for some time.
The views and opinions expressed here are exclusively those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.