Episode 4

If Leverage Fueled Bitcoin’s Rally, Where Does Price Go Now?

Bitcoin expert Caitlin Long reiterates her faith in the cryptocurrency — despite bouts of runaway leverage.

By Zack Abrams

November 21, 2022

It would be natural for anyone in the crypto space to be experiencing an intense pang of doubt — especially after the collapse of FTX has sent bitcoin's price to its lowest value since November 2020, almost exactly two years ago.

To help us explain why bitcoin remains valuable despite the reduction in demand, Coinage host Zack Guzman sat down with Wall Street veteran and founder of the crypto-native Custodia Bank Caitlin Long. In a new interview, Long discusses how Bitcoin's decreasing emission rate keeps its supply similarly as scarce as gold.

Long predicts an increase in bitcoin's price about six to nine months after Bitcoin's next "halvening" of its emission rate, which is scheduled to take place around April 2024. Long pointed to prior cycles as reasons for bitcoin's bull market runs, and she doesn't see those cycles ending any time soon.

"These have been very pronounced repeated cycles and I don't believe those cycles have gone away," said Long. "There's a fundamental reason for them."

As for the FTX collapse, one of the reasons FTX became the second-largest exchange in the world was its targeting of pro users and its ability to let users play with higher leverage than comparable exchanges. That leverage can lead to greater investment across the ecosystem and higher highs, but when prices crash, the deleveraging can lead to lower lows as well.

With higher volatility, it can be disheartening for people like Long who left Wall Street to work in crypto, especially following crashes like FTX's.

"The leveraging absolutely is swinging the price around. There's no debate about that. And it's causing higher volatility," said Long. "And therefore, the implicit cost of capital for those of us who are building in the industry is higher as a result."

Long sees those downsides as too big a price to pay for the upsides of high-leverage bets.

All those things are bad. And I say good riddance to it all," she said.

For more of Caitlin Long's thoughts on the stock-to-flow model to predict bitcoin's price, check out our community extra above.