Bitcoin Breaks Out After Quiet 6 Months
This report covers:
A roundup of the news that skyrocketed Bitcoin 30% in a week
What the charts say about where Bitcoin is going now
Is it time for Ethereum and Altcoins to catch up to Bitcoin?
Current price of bitcoin: $33,865
Read time: 6 minutes
Summary
My best bullish thesis:
Fundamentals: It seems that it’s now almost guaranteed that BlackRock (and others) will get SEC approval for a spot Bitcoin ETF. Larry Fink, the company’s CEO, was back on TV shilling crypto, this time describing it as a “flight to quality.”
Technicals: Bitcoin broke out of a range it had been in for over six months. See weekly chart analysis below.
Sentiment: Normies are still disinterested in crypto. If the momentum continues, FOMO could set in send crypto higher.
My best bearish thesis:
Fundamentals: There are no signs of returning to a zero interest rate environment or excessive money printing anytime soon. Who wants a hedge against currency debasement when the Fed is actively fighting inflation?
Technicals: Bitcoin has rallied right into a high time frame resistance level at $35K. See monthly chart analysis below.
Sentiment: The crypto natives who are always bullish (including at cycle highs) are euphoric right now.
BlackRock Spot ETF News Fuels Rally
Bitcoin has rallied nearly 30% in the past week on news that indicates the BlackRock spot ETF is highly likely to be approved, and speculation that it will be bullish for Bitcoin.
It started last week, on Monday, October 16th, when Cointelegraph shared fake news that the ETF had already been approved. This gave investors a glimpse into the future of how the market might respond if/when the ETF is actually approved. It was notable that after it was revealed that the announcement was made in error, Bitcoin did not fully retrace the move up.
Bitcoin broke out of the top of the range it been in on the daily chart for two months. It then pulled back into the top of the range and the 200-day moving average which provided support and sent Bitcoin skyrocketing higher.
I don’t think the spot ETF will bring in as much as much new money as some people are speculating it will, but if the market thinks it will, then the price of Bitcoin will go up (at least temporarily). And it has.
Galaxy published a balanced report called Sizing the Market for a Bitcoin ETF which speculates that BTC could see 75% appreciation the year following approvals. That sounds reasonable to me. I think Bitcoin will provide solid returns in the coming years, but perhaps not a 10x like in the past because the lenders and the GBTC carry trade are gone.
What The Charts Say Now
I wrote in my previous report that if Bitcoin broke out above the $30K that it would be a bullish buy signal—but that I would be waiting until $35K to buy. After that report, in the beginning of October, I said that if BTC breaks up through $28K that it likely goes up to $35K. I wasn’t expecting that scenario to play out but it did.
So where do we go from here? I had been waiting for the market to prove that the bulls are bullish enough and so far it is. However, I’m sticking to my criteria of breaking up above $35K. Let’s zoom out to the monthly chart to see why.
My most bullish interpretation of the monthly chart is that it’s in an uptrend. I could make the case that the down candle in May was just a part of the move up from $16K in January to $30K in June (it was not a low), and therefore that the down candles in July and August were a low (not a lower-low), and that Bitcoin is currently making a higher-high by going above the thin green line at $31K.
However, Bitcoin is now at a resistance level at $35K (the thicker horizontal green ray). I don’t know how significant it is because it’s based on price action from so long ago, but I think that at the least, technical traders will be expecting it to be resistance. And indeed, Bitcoin has been selling off at this level yesterday and today.
It might seem like a bummer to miss a 30% move but I didn’t think that the risk x reward x probability made sense then, but I do think that it will make sense above $35K. I’m not expecting Bitcoin to enter an insane bull run like in the past any time soon, but I do think Bitcoin will provide solid returns in the coming years and decades so I’d like to make it a small portion of my portfolio for the long-term if it continues showing strength.
I’d also consider buying Bitcoin if it pulls back to around $31.5K and quickly reverses back up.
Alt Season?
On a less bullish note, it’s notable that the total market cap of crypto has not made new highs. It certainly might soon, but it has not yet. This suggest that the Bitcoin rally has more to do with crypto natives rotating money rather than new inflows.
Ethereum has been underperforming Bitcoin. The chart above shows Ethereum priced in terms of Bitcoin, and it looks horrible. I’m tempted to take a bet that this will reverse and that Ethereum will catch back up, but I don’t currently have any fundamental or technical thesis for doing so. I’m not expecting an alt season anytime soon.
More news and alpha
New York Attorney General sues Gemini, Grayscale, Digital Currency Group (DCG) seeking $1B. According to Ram Ahluwalia, DCG was worse than Enron. Could this lead to Grayscale not being permitted to convert GBTC to an ETF?
GBTC Discount shrinks to ~11%. How much of the recent price action and short covering is people unwinding the recent GBTC arb trade (long GBTC, short BTC)?
The Wall Street Journal falsely reported that about $90 million worth of crypto was used to fund Hamas. The authors of the article mistakenly counted an entire exchanges’s trading volume ($82 million) for a terrorist group’s address.
Binance says they’re no longer accepting UK users. There’s still a non zero chance that Binance goes down.