The CIO at a digital asset hedge fund that returned 373% in 2020 breaks down why bitcoin's sell-off is in its final stages – and shares why he thinks ether could triple from current levels

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Bitcoin’s woes may be coming to an end.

  • Bitcoin’s sell-off may soon be over, according to Arca CIO Jeff Dorman.
  • Dorman shared the indicators he’s looking at that tell him the sell-off is in its later stages.
  • Dorman also broke down why he’s bullish on ether, and thinks it could triple in value.
  • See more stories on Insider’s business page.

Following a gargantuan surge earlier this year, bitcoin has spiraled downward over the last month, falling more than 40% from after hitting an all-time high in April. And the more it falls, the more its price chart resembles the cryptocurrency’s 2017-18 pattern.

But according to Jeff Dorman, the chief investment officer at digital asset management firm Arca, the sell-off is near its end. Dorman manages the Arca Digital Assets Fund, which returned 373% to investors in 2020 – compared to 300% for bitcoin, and 276% for the Bloomberg Galaxy Crypto Index (BGCI).

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In a phone call with Insider on Wednesday, Dorman said sell-offs for any asset can be broken down into four stages, and bitcoin is most likely in the fourth and final stage.

The first stage took place when institutional investors started to lock in gains when bitcoin’s price was high. These investors include “the people who are unemotional and come from the outside: your Ruffers, your Blackrocks, your Guggenheims,” Dorman said. “Then all of a sudden you run out of buyers for that, and that starts to leverage liquidation. And when liquidation starts happening, all the leverage gets knocked out.”

“The third stage of selling is the retail [investors] who look at the price over the last few weeks and say, ‘Oh my God, it’s down so much, I can’t stomach this, now I need to go start selling too,'” he continued. “And the fourth leg of the selling, which is probably where we are right now, is there is no more sellers…Now you just have momentum traders and people who are short just pushing it down until there is resistance.”

Dorman said that the current low trading volume also signals that the sell-off is in its later stages. Furthermore, he cited Alternative’s Crypto Fear and Greed Index, which is currently in “extreme fear” territory, as being an “almost fool-proof” indicator of where bitcoin will go next.

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“Every time the fear and greed index is really high and everybody loves bitcoin, we inevitably crash, and then when it gets super low, like right now, we inevitably rally,” he said. “And the reason for that is because it’s just how capital markets work.”

But some positive catalysts are needed to drive buyers back into the currency, he said, though it’s uncertain when they will appear and become convincing enough to motivate investors.

Dorman believes some potential catalysts could be countries continuing to recognize bitcoin as an official currency, or a spike in inflation amid massive fiscal and monetary stimulus.

Why Dorman thinks ether could triple

Dorman also likes ether’s prospects going forward, in spite of its recent decline of 38%. He hasn’t always been bullish on ether, though, despite always having liked the tokens that are based on the ethereum network.

But the new EIP 1559 proposal, which is due to be implemented into the network this summer and will funnel fees away from miners and instead towards token holders, is one reason he has changed his mind.

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He also likes that ether generates more fees than bitcoin, and therefore has a stronger key performance indicator.

“Ethereum…is generating around $7 million a day in fees. So if you do seven times 365, you can see that we’re talking about $2.5 billion of fees being generated every year,” Dorman said. “You can actually start looking at this using a dividend yield model or using a discounted cash flow model and start coming up with price targets.”

Bitcoin, in comparison, generates around $1 million in fees per day, he said.

Asked how much upside he thinks ether has from current levels, Dorman said he doesn’t think it will climb as high as bitcoin has. Still, he said he thinks it could potentially triple in value.

“It’s a pretty mature asset already. It’s already a $300 billion asset,” he said, adding that bitcoin’s total market cap is around $700 billion. “The context I’m talking about is maybe it doubles or triples.”