Welcome to Capriole’s Update #40. Where we consolidate the most important Bitcoin news, technicals and fundamentals into a 3-minute update.
Market Summary
Our bullish bias in Update #6 was justified and we have completed 60% of the move to $40K, hitting $35.1K earlier today. A lot of the positive conditions we have been discussing in the last issues are more broadly getting priced into the market now:
- The Halving is in just 5 months. Historically, most of the months for the next 12 months tend to be positively returning, historically there is no better time to be long Bitcoin than around the Halving.
- Bitcoin has continued to de-correlate from risk assets. Also bullish.
- Bitcoin has rallied strongly with Gold. A very powerful combination in the past.
- The pressures of high rates are increasingly building the narrative for Fed’s softening.
The biggest market news of the last two weeks was the leaked Bitcoin spot ETF approval announcement by CoinTelegraph. This allowed us to see into the future. Price immediately rallied 10% almost instantaneously. While this rumor may have been unfounded, we have seen increasing evidence that multiple spot ETF approvals are very close including; multiple resubmissions following SEC feedback (this is the first time they have worked together), positive responses from Blackrock and other filing entities, the creation of CUSIPs and ETF tickers and Blackrock’s amended prospectus which aims to seed the fund in October, this month.
We now have the biggest asset managers in the world trumpeting Bitcoin as a “flight to quality” amidst devaluing fiat currencies and mounting global tensions and war, all as we lead into Bitcoin’s most important Halving event ever. You couldn’t ask for more.
Technicals
High Time-frame Technicals: after flying from $28K last issue, Bitcoin is trading into Monthly resistance at $35K today. Given the last 7 months of consolidation, and given weekly resistance ($32K) melted like butter, we lean towards monthly resistance not being a significant barrier. It would make sense to see either a rapid continuation to mid-range ($43K) or short-term consolidation between support resistance at $32-$35K before continuation. The magnitude of the breakout and re-entry into the 2021 range puts us at support, so the burden is now on bears if they want to change this new major trend.
Low Time-frame Technicals: the Wyckoff structure we have been following for some weeks on the Daily timeframe confirmed today with the breakout to $35K. A simple rule of thumb for the magnitude of the follow through is a move of equal magnitude to the prior trend (from $20K to $30K). That would take us into the $40Ks, and roughly aligns with the 2021 high time-frame mid range level ($43K). A move which puts a “4” in front of Bitcoin’s price would be logical over the next week(s).
Fundamentals
Fundamentals and on-chain data help us understand which way the probabilities are skewed at important inflections, and were critical to our navigation of this cycle and identification of the bottom at $16K.
We believe the full picture of fundamentals is best summarized by Capriole’s Bitcoin Macro Index, which we publish live with weekly updates here. This Index includes over 40 of the most powerful Bitcoin on-chain, macro market and equities metrics combined into a single machine learning model. This is a pure fundamentals-only value investing approach to Bitcoin. Price isn’t an input.
Bitcoin fundamentals have been up-only the last weeks. When fundamentals (value) rises with price, you have sustainable price trend. The significant advances in fundamentals are supportive of the current major technical breakout. A strong confluence for the bulls.
If you noticed the scores have changed a bit, it’s because we have conducted a significant upgrade to this model and incorporated even more data feeds. But it doesn’t change how the signal is interpreted.
Chart of the Week
One potential cause for concern is the sharp uptick in Bitcoin miner sell pressure. Bitcoin Miner Sell Pressure tracks the ratio of Bitcoin miner output transactions to their reserve holdings. It’s an approximate barometer for their level of selling.
No doubt Bitcoin miners are ecstatic to see a 20% uptick in Bitcoin’s price and, therefore, their revenues. As a result, they have also been selling off more of their reserves to lock in that profit.
Miners will continue to sell more into the future as price rises, but this metric does tell us to be a bit cautious here. Perhaps we will spend some more time consolidating below monthly resistance? Or perhaps Blackrock’s ETF seeding bid be a sufficient counteracting force to the miner’s ask?
Bitcoin miners are selling off more of their treasury than usual today, this can be a warning sign for consolidation.
Bottom-Line
Market conditions and Bitcoin native conditions have been supportive of a pending breakout for the last weeks. We closely tracked this and we now have confirmation. While price may temporarily stall here at monthly resistance, the next significant trouble area is low- to mid-$40Ks. We expect Bitcoin will take us there in short order given the data on hand.
For risk management, it would be concerning to see any daily closes below $32K which, along with fundamental data decay, would invert our thesis and form a failed breakout. Until then, we will enjoy what Bitcoin does best when the sleepy giant awakens. Outperform.
Charles Edwards
Founder
