Bitcoin Rebound Attempt Underway: Can It Last?

👇1-14) The Bitcoin crash on Monday reversed upon reaching the Bitcoin Spot ETF launch date on January 11/12, 2024, a key reference point in the market's recent history. Traders are focused on the technical aspects of price movements, and a thorough understanding of this analysis can lead to more informed trading decisions. Even the most optimistic crypto traders must acknowledge that the declines have been progressively deeper: 56,500 in May, 53,500 in July, and 49,100 in August.

Bitcoin - a lot of chart technical damage has been done.

👇2-14) Bitcoin is attempting to recover, but the strong resistance from the well-defined downtrend will likely be more challenging after the recent support break. Our bearish outlook stems from monthly technical indicators, which, as of May 2024, have reached levels where prices have historically reversed in previous bull markets, such as in January 2018 and April 2021. We can only confirm this in a few months with the benefit of hindsight. However, it has periodically influenced our expectations of price declines in April, June, and August 2024.

👇3-14) From a technical perspective, the 56,000/57,000 area is expected to act as significant resistance for Bitcoin. A close above this level would be a positive sign. However, it is crucial to have firm stops in place for long positions (54,000) due to the prevailing downside risk indicated by incomplete technical indicators.

👇4-14) We do not advocate for HODLing, mainly because neither Bitcoin nor Ethereum is exhibiting the steady, high Sharpe ratio uptrends that US stock market investors have enjoyed with minimal effort. The buy-and-hold strategy has proven ineffective in many countries' stock markets and for those who entered the crypto market in the past three years. Additionally, with original wallets consistently selling near the 70,000 mark, we must remain vigilant to determine if this represents a structural ceiling for Bitcoin.

Bitcoin (white) is trading below its 21-week moving average (purple)

👇5-14) While neither Bitcoin nor other cryptocurrencies will ever disappear as trading instruments, we appreciate Bitcoin's volatility despite its potential structural limitations. A reliable method to cyclically determine if Bitcoin is in a bull or bear market is to monitor the 21-week moving average. Typically, a bull market is indicated when Bitcoin trades above this 21-week moving average, whereas a bear market is signaled when it trades below.

👇6-14) Adhering to this trendline would have helped avoid significant drawdowns in 2022 and offered advantageous entry points in 2020 and early 2023. Although moving averages sometimes give false signals during price reversals, skilled traders would promptly adjust their positions to align with the prevailing trend. With the benefit of hindsight, the 21-week moving average, currently at 61,824, indicates that a bear market is underway.

👇7-14) It is astounding that despite the introduction of Bitcoin Spot ETFs, which have seen $17 billion in net inflows and enabled institutions, pension funds, and others to include Bitcoin in their regulated multi-asset portfolios, Bitcoin prices on Monday remained similar to their levels at the time of the ETFs' launch.

👇8-14) By definition, for these ETFs to be purchased, someone else must have been selling. Otherwise, Bitcoin prices would be much higher. Original wallets sold near the 70,000 mark, and it seems hedge funds initially bought the ETFs for arbitrage purposes but have since liquidated their holdings due to insufficient funding rates. Retail investors have likely become the largest holders of these ETFs, often at unfavorable prices.

Spot ETF flows (purple, 5-day moving avg. white) vs. accumulated flows

👇9-14) This time, Bitcoin Spot ETF investors are not buying the dip (see white line above) - at least not yet. With the average entry price around $60,000, these investors are currently underwater, contending with a declining Bitcoin price. Given Bitcoin's current downtrend, retail investors, who often follow trends, may hesitate to engage in massive buy-the-dip ETF flows.

👇10-14) Despite the impressive $17.1 billion accumulated inflow into Bitcoin Spot ETFs, which resembles a high Sharpe ratio style, Bitcoin's performance has been volatile and declining. The question remains: how long can ETF investors resist the downward trend?

Bitcoin vs. Nasdaq regression analysis

👇11-14) While the world is focused on the unwinding of the Japanese carry trade, it’s crucial to note that the US tech sell-off is primarily driven by disappointing earnings growth and weak future profitability forecasts due to substantial AI investments. Therefore, even if the world moves past the hype surrounding the Japanese carry trade news, the downside risk for the Nasdaq persists, and Bitcoin could experience further declines.

👇12-14) Additionally, the selection of Trump's Vice President, perceived as anti-big tech, adds to the uncertainty. With Trump's rising election odds, political headwinds could impact tech stocks, influencing the ‘crypto tech’ sector as Bitcoin/Nasdaq correlations increase. Uncertainty surrounding the economy, inflation, and potential interest rate cuts will persist until September.

👇13-14) Ideally, the Nasdaq would need to decline another 9% before a significant rebound, possibly around mid-September. Our regression analysis indicates that the Nasdaq is currently 7% overvalued compared to Bitcoin. Consequently, Bitcoin has already priced in much of this potential decline.

👇14-14) However, there is a likelihood that this valuation could drop even further due to Bitcoin’s higher beta. To ideally time the next bull market entry, we aim for Bitcoin prices to fall into the low 40,000s.