Ups and Downs
Ups and Downs
A rally above $30,000, a sharp pullback, and a strong bounce off the 50D moving average.
STRATEGY: I recently wrote, “Should consolidation continue, prepare for the next leg higher.” Bitcoin has done just that, rallying above $31,000, with a quick test of the (now rising) 50D moving average. The “relentless rally” that began in January continues, driven by themes such as correlation with gold, the Fed’s near-end to tightening, and bank uncertainty as a driver of awareness. Idiosyncratic headlines have done very little given an improving macro backdrop for bitcoin. My $48,000 year-end price target remains in play. Continue buying dips with an eye on both the 50D and 200D moving averages as support, now ~$27,700 and ~$21,700. This strategy is supported by:
A strong reminder of the willing backstops provided by both fiscal and monetary groups, highlighting core tenets of bitcoin’s investment theses: 1) continued policy willingness to spend versus verifiable scarcity, 2) banking counterparty risk versus on-chain transparency, ad 3) the ability to “be your own bank”
The likely end of tightening, given continued disinflation, slowing GDP growth (yet still in expansion) and currently, a 5% upper bound (75% chance of a hike next week, but just 16% chance of another hike following)
Digital asset price resilience through equity volatility: bitcoin has reached a high of ~$31,000, up 77 % YTD
A resilient US consumer, continued disinflationary trends, a robust labor market, and decent equity earnings as a “good enough” foundation for risk assets after an incredibly tough year. Note that “big tech” earnings have surprised to the upside and broader SPX operating earnings are up 3.7% y/y thus far.
The very-likely October as the cycle low in equities, and what a better equity market means for digital asset relative value
The systematic signal of price > 200D moving average, now ~$21,700
Continued strength in underlying fundamentals. I’ve recently discussed bitcoin holding trends, non-zero addresses, and active address growth for Bitcoin and Ethereum
Risks to this strategy include:
Resurge in inflation, resulting in > 5.5% or 5.75% Fed Funds (do not foresee, but remember Fed uncertainty has more impact on volatility than the actual FF rate)
A regulatory crackdown on bitcoin specifically (do note that cleaning up the last of the wild-west is necessary, and even improve bitcoin’s relative value versus alts. I also do not foresee negative bitcoin specific regulation)
Ups and downs, ups and downs. Or really, just a trading range. While I last wrote, “should consolidation continue, prepare for the next leg higher,” this is exactly what occurred.
Bitcoin, after spending three weeks in a range of around $27,000 to $28,600, rallied to a high slightly above $31,000. The rally consolidated from there and slowly pulled back to a test of the 50D moving average.
This “test” occurred again last week - this time, in a more aggressive fashion: after rallying from the lows, bitcoin fell 10% in a little over two hours - again back to 50D moving average.
This type of price action reminded many that bitcoin can provide feelings of both FEAR and GREED - even on the SAME DAY.
As technical traders, we know that buying at the rising 50D moving average is often an “easy trade”. Hopefully, some bought the dip despite the fear that occurred throughout that hour.
But as we soon found out - the fearful heard That sharp decline from ~$30k to $27k was just noise – quickly, bitcoin rallied again back to the key $29,000 level. The “relentless rally” continues, with a NEW “higher low” around the $27,000 level. A zoomed-in technical chart, below:
It appears many are still “hoping” bitcoin again falls below $20,000 – but this becomes ever more unlikely with each and every day. The time to buy was in 2H of last year – when fear struck the markets, and bitcoin put in capitulatory wicks in price action as well as in on-chain metrics such as realized losses and aSOPR. I noted these in previous research at my prior firm many times throughout that period.
This year, the move above the 200D moving average was the biggest signal. I highlighted this back in January, and price is now 48% above that level.
So why can’t bitcoin fade? Will there be an opportunity to buy a dip below $20,000?
As of now – I don’t believe so. Bitcoin has spent many months above its now rising 200d moving average, fending off a slew of negative regulatory headlines yet continued to rally given the macro backdrop.
I said this often in 2022: rising yields and the dollar were the two key “macro overhangs” that impacted risk assets - and particularly bitcoin - in 2022. These reversed in October, and naturally, risk appetite has risen as a result.
Remember, markets are systematic. The equity low in 2022 “just so happened” coincided with the peak in yields and a lower high in the DXY. While there was noise everywhere at that period, it’s all very clear when you take emotion out of the equation. Intermarket analysis always shows the way.
In today’s macro land – recent economic data has been both positive and negative – disinflation continues (progress, not perfection) yet economic growth is slowing (1st estimate of Q1 GDP came in at +1.1% vs. +2.0% expected).
Next up is the Fed meeting, in which the market prices in a 75% chance of a hike to 5.25% upper bound and just a 16% chance of anything after that. As usual: tone in the “Powell Presser” is what matters.
The end of “tightening” is near: you’ve waited long enough. While this doesn’t necessarily mean BRRRRR, it will be refreshing to put the Fed hikes behind us.
Digital Asset Specific
Ether has completed the Shanghai upgrade and surprise surprise, that FUD was also just noise. As I wrote ahead of the date:
1) much of staked ether is already liquid (LSDs)
2) staked ether is naturally long-term in nature and
3) the ability to withdraw will increase staking confidence
And as we know - there was no “imminent collapse” in price from a “withdrawal waterfall.” The amount of staked ether has actually risen since Shanghai, reaching new highs of ~19.4 million ETH staked:
The regulatory headlines I discussed in my “Idio-what?” note still linger, and of course, weigh on the backdrop for both “alts” and even Ethereum. ETH/BTC remains technically weak, as it should in this uncertain alt environment. Remember: dApp use drives ether’s price. Chart below, noting the $0.062 line in the sand, with clear ~$0.07 and 200D MA resistance.
In recent conversations with some friends, I provide further warning on altcoins. The crackdowns on both US exchanges and the scrutiny on individual protocols is not bullish for this portion of the asset class and likely means a very tough road ahead for investors “hoping” “alt szn” begins.
Similar to cycles in the past, many altcoins will fall by the wayside. Caveat-emptor & pick accordingly.
Those that are interested in alts could utilize a similar trend following strategy as illustrated with bitcoin, below. In theory, assets are not trending higher unless their price is above any recent historical average. It’s that simple.
Remember: bitcoin first. Bitcoin is macro. Bitcoin is fully decentralized. Bitcoin is deemed a commodity. And bitcoin is even more attractive relative to the asset class given the altcoin environment.
This relative attractiveness is fully illustrated through bitcoin’s dominance, reaching the top-end of its 2-year range and appearing ready for a breakout:
Long-Term Technical Chart:
STRATEGY: I recently wrote, “Should consolidation continue, prepare for the next leg higher.” Bitcoin has done just that, rallying above $31,000, with a quick test of the (now rising) 50D moving average. The “relentless rally” that began in January continues, driven by themes such as correlation with gold, the Fed’s near-end to tightening, and bank uncertainty as a driver of awareness. Idiosyncratic headlines have done very little given an improving macro backdrop for bitcoin. My $48,000 year-end price target remains in play. Continue buying dips with an eye on both the 50D and 200D moving averages as support, now ~$27,700 and~ $21,700.
For illustration, I color code the chart for when bitcoin’s price is above the 200-day moving average (green) and below (red). This simple indicator is a clear and simple “signal” for those looking to identify the longer-term trend.
We can identify 17 occurrences when bitcoin’s price flipped above or below the 200D moving average, illustrating a robust signal for long-term trend following:
Stay Tuned,
Joe Orsini, CFA, CMT