Update #51

Welcome to Capriole’s Newsletter Update #51. A consolidation of the most important Bitcoin news, technicals and fundamentals.

Market Update

The last 3 weeks has seen transformative industry news. Regulators state that their actions are not influenced by elections, but once again we have seen that is not the case. On May 23rd the Ethereum ETF was approved by the SEC, despite the SEC being staunchly against it. ETH has now been classified as a commodity. Trump raised millions in crypto donations and the Democratic party does a U-turn on their anti-crypto stance as a result. Four years of anti-crypto government and banking action is being rapidly unwound in 2024. Bitcoin is now embedded in the largest banking institutions around the world and in all major equities markets. This isn’t just adoption, Bitcoin has been institutionalized.

With the M2 money supply once again in expansion and the discussion on Federal Reserve rates centering only on how long until the next cut, the Fiat monetary system is once again ramping up for the next debasement wave. Perfectly timed for the November election. The positive impacts of financial easing will likely become readily noticeable in five months time when voters must stand (equities all time highs, ease of financing, etc) but the added negative impacts (higher costs of living, CPI inflation, wealth destruction) of action today won’t be felt for another 12-24 months when the election results are well and truly in. Nothing new. A staunch reminder of why Bitcoin was created 15 years ago.

With crypto now firmly locked into all financial rails and a new wave of election inflation beginning, the crypto surfing season is upon us.

Technicals

You couldn’t ask for a cleaner high time frame chart than the Bitcoin Weekly/Monthly below. With a recent all time high breakout, retest of range high and consolidation at resistance, it doesn’t get much better than this. The story changes if the monthly closes below $58K. But until then, the mid-term target for this chart remains $100K, with the price impulse move likely taking us beyond.

Fundamentals

The collective picture as shown through Capriole’s machine learning fundamentals model Bitcoin Macro Index switched to expansion on May 19th ($66K) as keen observers of Capriole.com/Charts noticed. This Index includes over 60 of the most powerful Bitcoin on-chain, macro market and equities metrics combined into a single machine learning model. It is a pure fundamentals-only value investing approach to Bitcoin, where price isn’t an input.

Expansion suggests growing on-chain network value and a favourable macroeconomic environment. Under these conditions, we usually see the best Bitcoin price performance. See the light green areas on the two charts below.

Chart Of The Week

Hash Ribbons is back. Perhaps the best long-term Bitcoin buy signal there is, Hash Ribbons is now tempting us with the current Miner Capitulation which started two weeks ago. Miner Capitulations are defined as periods of decline in Bitcoin’s Hash Rate. They are periods where the 30 daily moving average (DMA) of Hash Rate drops below the 60 DMA of Hash Rate. This typically occurs about once a year. Many Miner Capitulations are mild, but some are catastrophic.

You will often see Miner Capitulations sync with shuttering of miner operations, bankruptcies and takeovers. As in the current instance, they also often sync with the Bitcoin Halvings. The Bitcoin Halving means that old, inefficient mining hardware becomes obsolete and no longer profitable to run (costs exceed revenue from the block reward). These mining rigs will typically then be phased out over several weeks following the Halving resulting in falling hash rates. Just as we are seeing today.

Through history, Miner Capitulations have in the vast majority of cases synced with broader Bitcoin market weakness, price volatility and significantly long-term value opportunities. This makes sense as price declines, or other challenging market conditions, mean tighter mining margins, industry consolidation and survival only of the strong. Miner Capitulations also add confluence to many other on-chain metrics which often suggest opportunity in the same region as these signals. The relative capitulation and opportunity at each signal varies widely and should be considered in context. While this capitulation is occuring when miners have broadly been profitable (due to a very high Miner Price from the growing block fees created by Ordinals and Runes as we discussed in Update 49), we would be remiss not to note this rare opportunity.

Hash Ribbons signals are either loved or ridiculed. Every occurance brings some debate about their relevance today, or why the current signal perhaps doesn’t count. This also happened in 2023, but price was also trading in the $20Ks when the last Hash Ribbon buy signal occurred, suggesting this metric still has incredible predictive power today.

The safest (lowest volatility opportunity) to allocate to the Hash Ribbons strategy is on confirmation of the Hash Ribbon Buy which is triggered by renewed Hash Rate growth (30DMA>60DMA) and a positive price trend (as defined by the 10DMA>20DMA of price). However, it’s worth noting we typically see the best price opportunities of each Hash Ribbon buy signal occur during the capitulation period.

The Hash Ribbons strategy was first published five years ago in 2019 and is unchanged since. You can read the original article here.

The Hash Ribbons chart is now plotted live at Capriole.com/Charts

The Bottom Line

This update we have incredible confluence of technicals and fundamentals which suggest Bitcoin is going a lot higher. We are currently entering the summer months, typically a financial lull, so it may take some time to kick start the next impulse up, but given the data on hand that is also not a necessity. As always it’s important to monitor the data and stay nimble. Clear risk management can be defined on both a technical and fundamental level with the data shown. For those on the sideline, Hash Ribbons will likely trigger its optimal buy signal at some point over the coming weeks.

Happy hunting.

Charles Edwards