Weekly: Rangebound
Bitcoin consolidates around $28,000, where to next?
STRATEGY: Three weeks of rangebound price action: where to next? While a pullback to $25,000 “makes sense” - not much has been able to hold price lower. Should consolidation continue, prepare for the next leg higher. My year-end target of $48,000 remains in place. Continue to buy dips with an eye on the 200D moving average for support, now $20,630, as well as the 50D moving average, around $25,120. 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 (Feb PCE < expected)
Digital asset price resilience through equity volatility: bitcoin has reached a high of ~$28,700, up ~70% YTD
A resilient US consumer, disinflationary trends, a robust labor market, and decent equity earnings as a “good enough” foundation for risk assets after an incredibly tough year. GDPnow estimates 1.5% for Q1 (economic growth through all the noise)
The still-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 $20,340
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, impacting Fed cut estimates (100bps was a lot, 75 is more reasonable - how does this, if any, impact bitcoin? Thus far, 75 bps is now the case, and little impact on downside))
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)
Short note this week and I will be on vacation next week, so the weekly strategy notes will resume the following.
4/7/2023 Strategy Note
Rangebound
Bitcoin is now rangebound for nearly three weeks - following the move from $19,600 to a high of $29,100, is now stuck between ~$27,000 and $28,500.
Of course, this brings the very important question: where to next? Will bitcoin pullback to say, $25,000 - or will the next move be into $31,500 and above?
To say the least, the idiosyncratic “stuff” hasn’t been able to bring price lower.
And as I said, the potential for a change in Fed expectations can possibly provide downside. Data this week (particularly the payrolls data, was not “bad enough” and now the market is pricing in 70% for another 25bp HIKE in May. But this provided little downside to either equity or digital asset prices, even as gold experienced a “minor” pullback from its rally highs.
But overall, the same themes remain:
The largest bitcoin dip in the move higher since January occurred through uncertainty with Circle’s (USDC) ~$3.3bn reserves held at SVB, yet bitcoin bounced perfectly off the 200D moving average (dip was % from ~25k to a low $19.6k)
Since the banking situation, the market now predicts multiple cuts, but less than before, moving from 100bps to now about 75bps of cuts expected
In this environment, bitcoin’s correlation with gold has risen, while fallen with equities
Important to note, gold came within 3% of its all-time high before pulling back
Equity prices continue to push back the bears’ timelines, with the S&P 500 and the Nasdaq Composite up 7 and 15% YTD
Now, earnings season begins next week, and management guidance will be of focus for investors
Within digital assets:
Bitcoin dominance has risen to the top of its two-year range, from 40% to now 47%
Bitcoin specifically benefitted from banking uncertainty narrative, alongside
General uncertainties around altcoins, staking, and security classifications
The halving, slated for May of 2024, narrative is just beginning
Ether - which is expected to undergo Shanghai upgrade on April 12th, put in new rally highs of $1940, before pulling back
Note there’s been fear, uncertainty, and doubt related to how much selling pressure will come from the unlock since the beginning of the beacon chain (the Merge)
Important, however, is that much of ether staking is already liquid through “liquid staking derivatives” and stakers are inherently long-term in nature
either or, this will be an interesting development - but naturally, a lot is priced in.
I promised digital asset sector talk but I must push this back to the next strategy note.
Updated Technical Chart:
Key levels below: $27,000, $25,120 (50D), $23,700, $20,630 (200D)
Key levels above: $29,000, $31,500, $34,000
Link to $48,000 price target note found here.
STRATEGY: Three weeks of rangebound price action: where to next? While a pullback to $25,000 “makes sense” - not much has been able to hold price lower. Should consolidation continue, prepare for the next leg higher. My year-end target of $48,000 remains in place. Continue to buy dips with an eye on the 200D moving average for support, now $20,630, as well as the 50D moving average, around $25,120.
Update to the K.I.S.S. 200D moving average strategy:
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