Strategist on Bitcoin: The market needs a 'healthy cool off period'

Bitcoin sank below $50,000 following Biden’s tax plan announcement. Fundstrat Lead Digital Asset Strategist David Grider joins Yahoo Finance Live to discuss.

Video Transcript

AKIKO FUJITA: We're starting, though, this hour with that big sell-off that we saw in cryptos, $200 billion in value wiped out from the cryptocurrency market. Analysts pointing to President Biden's plans to raise the long-term capital gains tax as the potential catalyst. And we should say BTC down more than 20% in just over a week. Let's bring in David Grider, Fundstrat lead digital asset strategist. David, it's good to talk to you on this Friday. How do you look at the sell-off that we've seen? Is this a healthy reset, or have we seen the top in the market?

DAVID GRIDER: Yeah, thanks for having me on. I think first we got to recap a little bit where we came from. We hit a new all-time high back Wednesday of the prior week when Coinbase listed. And that was a very exciting event. And we hit 65,000 there. And following that, I think you saw a little euphoria fall off the market. And then we saw some margin leverage kind of unwinding from that, as folks were getting on some of these offshore exchanges a bit of extra exposure.

And we had a little reset of that over the weekend, which sparked a little bit of that healthier correction. And then coming over into this week, we've seen a couple of things that have kind of put a little water on the market from, you know, some notable folks on Wall Street calling for some pullbacks to the tax hikes potentially, looking at some folks in crypto who have made quite a bit of money over the last few years maybe wanted to take some off the table ahead of that. So I think that those are some of the things that have occurred. But we don't see this necessarily as something that's taking us to necessarily, like, a 2017 type market top, but more so as something where the market needs to have a healthy cooling off period before the market can continue forward.

ZACK GUZMAN: And David, I mean, it looked like we got that over the weekend. We can talk a lot about maybe leverage built into the market now as DeFi is taking off and how much that might have been automatically triggered when we got these drawbacks. But when you step back and maybe look at things, kind of shocking to see how some of these price calls based off the historical cycle of Bitcoin still remain intact here. I was looking at Pantera's stock to flow model, and it's followed that pretty much up. So, 115,000, their year end target, might still hold if you think that's going to continue. I know you had a $10,000 or so target on Ether. Talk to me about maybe the way that that's held up here-- it hasn't necessarily declined by as much, still holding above 2,000-- what you're seeing when it comes to that.

DAVID GRIDER: Yeah, that's right, Zack. I think that's a great point. We also have a $100,000 target on Bitcoin as well for the year end. And we're sticking to that. I think one of the things that does give us a bit of confidence kind of where we're at with the longer term cycle is that if you look at other large digital assets like Ethereum, which has held up pretty well in relative terms during-- even during this pullback Bitcoin's had, it's been, on a relative basis, kind of actually making newer, recent highs over the last few years.

So I think that that's a strong indication that big segments of the market really are just seeing capital kind of move around within it. And we're not necessarily seeing a super flee of capital. But I do think, you know, there could be a period where we do have a quicker-- we could have some pullbacks. But I think, you know, if you're a trader, maybe you can think about that. But I think if you're an investor with a longer term time horizon, I think there's still reasons that folks should still be involved in crypto.

AKIKO FUJITA: David, if we're talking about the capital gains tax, this idea, we should say, just being floated out there-- it hasn't necessarily even been proposed-- if that was, in fact, the catalyst that we saw for this sell-off, what does that tell you about who's actually investing in cryptos right now and the amount of gains they're seeing? How do you make that direct correlation?

DAVID GRIDER: Yeah, I think that it's-- you know, we don't know that it's necessarily going to go through as it's been talked about just yet. So I think that's the first thing to know. But obviously, every market will have its knee-jerk reactions as news comes out. And, you know, our policy analyst Tom Block does think that things-- it probably won't go through as passed. But if you look back to, you know, just the price moves that we've seen in crypto over the last couple of years, I mean, people would have quite a bit of capital gains on the table. So I think possibly that it was something that also sparked some folks saying, look, let me, maybe ahead of this, if this does go through, see what I can do to optimize my strategy that way.

ZACK GUZMAN: And lastly, I mean, we've been talking a lot-- no doubt we've seen from our stats here a lot of people are interested in Dogecoin. That really has come back down, too. But it sparked, I think, another wave of maybe people who hadn't really thought about crypto getting excited, taking a look. When it comes to that, how much does it add or detract from maybe the more established cryptos we talk about in Bitcoin, Ether, in some of these other projects, when you have that kind of enthusiasm and Bitcoin dominance, which we also haven't really discussed falling as well. So how do you see that kind of playing out amongst some of the more established and less established players?

DAVID GRIDER: Yeah, I think this is a natural thing that's happened in the prior market cycles that we've seen. You know, after Bitcoin breaks its all-time highs, you see capital flows within the crypto economy go to other coins. And then you also see this dynamic where newer investors who maybe view Bitcoin or some of the larger coins as too expensive for them on a dollar basis going to some of these smaller coins.

But the interesting thing about this is that the rally we've seen thus far from 2020 and 2021 has really been institutionally dominated. And I think on a mass basis, it feels like the new capital flowing in from Dogecoin and what we're seeing in some of these other coins is kind of the first wave of retail kind of getting excited and involved. Now I think some folks probably got ahead of themselves. And I think-- and we had that pullback there, and it's kind of to be expected. But I think people were just testing the waters. And I think there's the way for more people to kind of get involved from that. So I think that that's an encouraging thing.