Welcome to Capriole’s Newsletter Update #57. A consolidation of the most important Bitcoin news, technicals and fundamentals.
Slashing Changes
Yesterday’s FOMC presser caused wider risk markets to collapse with the S&P -3% and Bitcoin -6% on the back of a less dovish Fed. The Fed’s key message was “we are taking it slower” now forecasting 1-2 cuts in 2025 (depending on the data). The Fed made it clear we are approaching the ever elusive long-term normalization of rates. This new stance is driven by the stickiness of inflation and relative robustness of employment (despite signs it’s weakening). To be fair this announcement was inevitable and it’s good that it happened now instead of too late. All else equal, it doesn’t make sense to continue aggressively cutting rates going forward, when inflation has been seemingly stuck to the 3% mark for the last 6 months and counting.
This announcement is by no means a pivot, and there was really no major change in the Fed’s approach, but it does tell us to be more open minded to a range of outcomes into 2025. This means more uncertainty in forward guidance from the Fed for now (and markets hate uncertainty), as the Fed awaits the fallout of Trump’s tariffs and the Department of Government Efficiency (DOGE) slashing of regulations and bureaucracy.
Markets had priced in a loose Fed for 2025. Now that picture is a lot more opaque. This caused a jump in forward uncertainty and the 10yr interest rates yesterday; which saw all risk markets reprice down in parallel.
10YR Treasuries broke out on the Fed’s speech. If the breakout sticks, that’s generally bad news for risk markets mid-term.
At the same time we saw the VIX volatility index skyrocket from its ultra low levels as fear spread. Yesterday saw the biggest 1 day VIX rise since February 2018. Drastic VIX spikes are often associated with short-term buy side opportunities. So we may see risk markets bounce at some point in the following days due to this initial overreaction. Bear in mind that it doesn’t tell us a lot about the broader mid-term trend over the following weeks.
We also have a strong dip on our proprietary Tech-to-SP500 VIX metric which can be indicative of a local buying opportunity, as shown in green below.
Wrapping up the Macro picture
So on the lower timeframe we have a few signals appearing which suggests we might get a local bounce. The Santa rally dream may not be dead yet. However, there are some growing mid-term trend red flags which need to be watched. If the 10YR treasuries continue to rally through year end, risk assets will be put under significant pressure. We also have to bear in mind that US liquidity is in a substantial downtrend now, and has been for the last weeks. So far this hasn’t mattered in light of the booming market wide Trump Pump but it is one of our bigger concerns going forward – risk of over tightening by the Fed and Treasury by monetary and interest rate means could create substantial headwinds, if jobs or the economy were to slow.
What does this all mean for Bitcoin?
Check out my X thread today for some interesting dynamics we need to watch over the coming months. In short, many new levers are entering the market under the Trump admin. Many will be good for markets, some won’t. We need to stay open minded for the various impacts these could have on risk assets, Bitcoin included.
Technicals
The “equal size move” we noted last issue has now played out with the move from $75K to $102K now complete in just a few short weeks. The $100K zone was a logical area for consolidation, for reasons discussed in more detail last issue and in my recent podcast. Just days ago we cleared $100K well with no excess leverage, flat funding and a solid orderbook. This was a strong and convincing breakout. Nonetheless, the Fed news took that away from us (for now). A fresh reminder that sometimes it doesn’t matter how good your portfolio of metrics or strategies are, oftentimes singular significant and standalone data points can shift markets.
All else equal as the current Bitcoin daily candle stands (see below), we have a strong reaction at $100K and are currently holding at $101K with promising strength (albeit there’s still quite a few hours left in the day). This is the type of technical reaction you want to see here, as the amount of effort that has been made to conquer $100K shouldn’t flop over too easily. For this reason, we really want to see $100K hold on a daily basis.
Likely Bitcoin will be looking to the S&P for the coming days for direction. So provided both markets follow through with a short-term, we have a good shot at a end of year Santa Rally.
In short: technicals look promising as of writing, but things get ugly very quickly if we lose $98K on a daily close.
The Bottom-line
This issue we stuck to the Macro fundamentals and Bitcoin Technicals as we believe these are the more important factors for Bitcoin at the time of writing. Generally speaking, Bitcoin Fundamentals are more of a mixed bag here, but they are also unlikely to be the deciding factor for the next couple weeks.
Bitcoin needs to hold the $100K breakout to avoid technical weakness and likely a period of extended chop at best and significant downside at worst. So far it looks promising, and it should be; given the billions of dollars of firepower that has been deployed in the last few weeks (special thanks to Saylor). Likely a good portion of Bitcoin’s ability to hold $100K will be driven by the S&Ps response over the next couple days, which as of writing looks promising. But there are growing levels of uncertainty with regards to the Fed, DOGE and Trump’s Tariffs beyond that, over the coming months. 2025 will be a year to stay nibble as there will be a lot of potentially major factors deployed by the DOGE and Trump which will swap markets.
We are highly optimistic for an incredibly strong 2025 for risk assets, both Bitcoin and Equities. We reference the impact of the directionally similar policy change on Argentina’s stock market. Which has seen incredible performance on the back of positive and drastic deregulation. DOGE’s plan to slash government bureaucracy in the US will be a massive mountain to climb. Success is not guaranteed. However, if you could pick one man for the job, it would be Elon. He has a track record for always achieving the impossible. So I am confident we are in for some exciting and positive surprises in 2025.
Merry Christmas!
Charles Edwards
