Oct 25, 2023

Bitcoin broke out of resistance. What's next?

Bitcoin Macro

Bitcoin broke out above the 25,000-32,000 trading range it was stuck in for 6 months, as well as the local top since the Terra/Luna crash. Recently, Bitcoin crossed back above its 100- & 200-day moving averages and the 200-week moving average, after some false news circulated about an ETF approval. Initially Bitcoin tested some key levels before falling back to consolidate around the moving averages, and then began rallying again. The market started exhibiting signs of another potential short squeeze forming, with perpetual swap funding quite negative yet the market looking balanced. Then speculation really mounted about a potential ETF approval as BlackRock's ETF started appearing on the DTCC website, which propelled the price of Bitcoin higher.

Despite rallying more than 15% in a day, testing several key levels, and currently being significantly overbought, Bitcoin still seems to remain in a bullish posture. Many key metrics are far from indicating extreme FOMO in the market. Looking at total crypto market cap minus stablecoins, the market has simply recovered back to where it was in April 2023. A further 15% rally from here could take Bitcoin up to the 39-41k zone, where taking some profits seems reasonable. Given Bitcoin's definitive close back above the 25-32k range after spending so long below 32k, a sudden momentum shift seems unlikely. It also would not be unreasonable to expect Bitcoin to test its all-time highs sometime in the next year.

Although there are still doubts that the SEC will approve an ETF, the GBTC discount closing from 50% to around 10%, the market is strongly signaling that ETF approval is coming, and the SEC has until Jan 14, 2024 to respond to new applications, with a final deadline of Mar 14, 2024. In the Grayscale court case, the judge fully ruled in favor of Grayscale, meaning the SEC would need to either approve the ETF or reject the ETF based on new grounds. Something that’s also important to note, is that most ETF applicants including Grayscale have revised and resubmitted their applications, making their approval more likely.

However, the ETF news aren’t the only positive news out there. There have been many recent positive developments in the world of crypto, along with some resolution of previous issues. First, it appears the DOJ will need to delay potential action against Binance, since SBF was speaking with regulators in an effort to target Binance. This provides some breathing room for Binance. Also, FTX is close to finding a buyer, and it looks like clawbacks and the appreciation of assets like Anthropic (SBF invested $500m, now worth $3B) should make creditors whole eventually. Ripple scored another win against the SEC, its third so far, as the SEC dismissed charges against Ripple executives - a potentially positive sign for crypto companies like Coinbase, which has its own SEC case. Coinbase is likely to prevail, further boosting crypto prices. More companies are now applying for spot Ethereum ETFs, which could see approval not long after the Bitcoin ETF. For now, Bitcoin dominance should continue rising, typical in a bear market and at the start of a bull run. While some crypto assets are outperforming Bitcoin, most aren't, so we'd avoid overinvesting in altcoins until the ETF launches and/or Bitcoin hits new highs.

Of course, a crash down to 22-24k is still possible, something that would be an exceptional buying opportunity, but for the time being it doesn’t seem likely. Going even lower seems even more doubtful without a confluence of very negative news and macroeconomic issues, like bad regulations, selling from bankrupt companies, an ETF rejection, a spike in the dollar and a collapse in the global stock markets. In our view, Until the market closes below 31k, or even below the major moving averages we mentioned before, we would not recommend shorting or selling. Despite rising long-term bond yields, despite all the bad things that happened in 2022 for crypto, Bitcoin has massively outperformed what was seen as the safest and most liquid instruments over the last 3-4 years, which are US treasuries. Declining bond prices likely reflect expectations of massive Fed money printing and stimulus, which would be bullish for crypto. Currently, further instability in the banking system looks possible, which could also be massively bullish for crypto as it was in March 2023 with the regional banking crisis.

Bitcoin Macro

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