Bitcoin pulled back about 12.5% last week. Pullbacks are never fun, but it’s not uncommon for Bitcoin to pull back ~20% or more, even during bull markets.
If you’re a long-term investor, you have to be willing to hold through these moves. However, you need to be able to differentiate between a small pullback (~20%) and a major change in market structure (~50% or more) because it has a major impact on returns. My crypto strategy is different than my stock market strategy in this regard because the swings in crypto are so much more common and large.
In my previous newsletter last week, I shared that I took partial profits on my bag because I thought there was a high probability of a pullback and I wanted to be able to buy more at lower prices. I didn’t sell all of my crypto because my long-term outlook is still bullish.
My base case scenario shorter-term however is that Bitcoin continues to pull back—down to about $23,300. That’s about a 25% pullback. It’s not the end of the world to hold through a move like this. However, I have a high degree of trust in my analysis at this point in my crypto career and I’m happy to spend the time on doing the analysis.
In this issue, I cover possible scenarios for Bitcoin now based on its long-term charts (weekly and monthly), and what the latest expectations for interest rates could mean for the markets.
Bitcoin Weekly: Plenty of Support Below
Bitcoin ran into a major, high time-frame resistance level and got rejected.
$28.7K served as resistance from mid March until mid April. It finally did broke through on April 10th, but then promptly closed back below it last week. Based in this price action, I have to assume that this is a key level that may continue to serve as resistance.
The question then becomes how low can this pullback go. Here are a few possible areas where Bitcoin could find support:
$25.5K: 200-week moving average (blue line) and the level that previously served as a key level of resistance (green line).
$23,300: Key level on the monthly chart shown below.
$20,000: Served as support during the SVB and USDC drama. Also a key level on the monthly chart that I’ve talked about a bunch in past reports.
I could also of course be completely wrong. The pullback could be over and we just moon from here. If Bitcoin closes a weekly candle above $28.8K, I’d be more confident that the pullback is over and that the bull market is resuming. However, I wouldn’t buy there because I expect it to at least take some time to grind up to $35K if not pull back significantly again. I’d rather buy above $35K because I think Bitcoin will then have a higher probability path to $60K with a pit stop or two along the way.
Bitcoin Monthly: Bull Trend Remains Intact
$23.3K served as resistance from the end of January until the middle of March of this year. It was also the closing swing high in July of last year. Therefore, $23.3K is a logical spot to serve as support. This represents a 25% pullback from the April 14th swing high.
If Bitcoin does pull back to $23.3K, it would mark a higher-low on both the monthly and weekly charts. In other words, the bullish uptrend would still be intact. The dashed grey line on the weekly chart above shows a visual representation of this. I’d be eager to buy at these levels.
I think it’s unlikely that Bitcoin goes all the way down to $20K. That would be about a 35% pullback. I think it would take a horrible fundamental news event such as the US actually considering banning crypto. If Bitcoin does go down this low, it would probably be while there is extreme panic in the market. It would be scary, but I’d just close my eyes and buy as a long-term investment.
If Bitcoin spends more than a few days below $20K, I’d have to assume that the bull market is cancelled until after the halving in March or April of 2024.
Interest Rates: Fundamentals for Pullback then Bull Market Continuation
Interest rate traders are now expecting the fed to stop hiking interest rates at the end of 2023. This could fuel Bitcoin and stocks to rally and for the US dollar to dip. The move would likely start a few months in advance of the change in interest rate regime—perhaps around July.
Stock Market: At Resistance
The S&P 500 (SPX) weekly chart is at resistance. Therefore, I’m expecting it to pull back before continuing higher.
US Dollar: At Support But Close to Looking Horrible
The US Dollar Index (DXY) is technically at support now, so I expect it to bounce and take some time before going below 101.6. But if and when it does break down from there, the chart would look super bearish. I’d expect it to then go all the way down to around 98.5 where there’s a horizontal support level and where the 200-week moving average would likely be.
This aligns with expectations for the Fed to pause interest rate hikes and start lowing interest rates at the end of this year. Bitcoin’s halving is then expected to take place in March or April of 2024. I think these events will be extremely bullish for Bitcoin.
This is not financial advice.