Traders Aren't Buying the Crypto Boom

For better or worse, crypto never made much sense to me...

That's partly why I've basically never written about cryptocurrencies. I've always invested in things I understood.

The "why" in the crypto market didn't seem compelling. At first, cryptos seemed like a fad investment without much staying power. Clearly, I was wrong on that front. Cryptocurrencies are here to stay – otherwise, they would have died by now.

But the more important reason I've avoided crypto is that I'm always driven by the numbers... And when an asset is new, you don't have historical data to help you analyze it.

Today, crypto is far from new. And with more than a decade of history to draw on, bitcoin is old enough to study with a data-driven approach...

It recently hit a new all-time high... But surprisingly, traders are betting on a decline. This sentiment mismatch is important to understand because it tells us that bitcoin is likely to keep rising from here.

Let me explain...

Bitcoin's Path to $200,000

Bitcoin has hit plenty of milestones on its road to adoption.

It started as an unknown asset in 2009. Then, it slowly became a household name. Eventually, platforms like Coinbase made it simple for the casual investor to own it.

Then, in 2017, bitcoin futures launched. And finally, last year, the first true bitcoin exchange-traded funds came to market.

Now you can own bitcoin in just about any type of investment account. The asset has gone completely mainstream.

Importantly, with futures trading going back nearly a decade, we can use one of our favorite tools to evaluate bitcoin sentiment... the Commitment of Traders ("COT") report.

The weekly COT report gives crucial insight into what futures traders are doing with their money. When these folks all agree, they tend to be wrong. So their bets can be a useful contrarian signal.

In short, if this group is clamoring to buy bitcoin, prices could be nearing a top. But that's not happening today, despite bitcoin hitting all-time highs above $120,000.

In fact, the opposite is true. Traders are more skittish about owning bitcoin than they've been in years. Take a look...

Bitcoin fell hard earlier this year. It dropped nearly 30% during the stock market sell-off in the spring. And, as you can see, that sent futures traders running for the exits.

Since then, though, the crypto has regained all of those losses and then some. Like the stock market, it's back to hitting new all-time highs... But futures traders are still selling.

The COT recently hit its lowest level since 2021. And according to history, buying after a new one-year low in the COT is a darn good strategy. These moves have happened six other times in the past six years. Take a look at what happened next...

Bitcoin is a massively volatile asset. It goes through booms and busts that make the stock market seem steady. But overall, it has posted an incredible 65% annual gain since mid-2019.

Still, buying when traders hate bitcoin is an even better strategy. These setups led to 23% gains in three months, 43% gains in six months, and a massive 85% gain over a year.

Over the past six setups we've seen, five were winners. And the one loser happened before a "crypto winter," where bitcoin fell nearly 70% over the next year. If you remove that unusual case, the typical one-year gain rises to a remarkable 162%.

Of course, we could be on the verge of another crypto winter today... But that's unlikely. Instead, traders hate bitcoin despite it reaching new all-time highs. And history shows that the current rally can continue as a result.

If bitcoin rallies another 85% from here, it'll soar past $200,000 a coin. That might seem crazy given the rally that just happened. But traders are still bearish.

This boom is far from over...

Good investing,

Brett Eversole