Cryptocurrency Market Speculations: Has Bitcoin Reached Its Bottom?
Cryptocurrency market enthusiasts and risk-on traders are currently grappling with the question: has Bitcoin, along with the broader cryptocurrency market, reached the lowest point of its current cycle? With Bitcoin’s value seeing a significant rise of about 50% in 2023, this query has gained urgency among traders and investors eager to determine if the market has indeed bottomed out. This article sets out to dissect various arguments for and against Bitcoin’s potential trough.
With Bitcoin’s value already up by approximately 50% in 2023, traders and investors are questioning if the market has reached its bottom. This article aims to explore various arguments supporting and opposing the notion of Bitcoin bottoming out.
Additionally, the article delves into a novel challenge for Bitcoin: navigating a severe macroeconomic cycle without the aid of quantitative easing, which has been a support since the Global Financial Crisis.
Let’s begin by examining the straightforward arguments favoring Bitcoin’s bottoming out, disregarding macroeconomic factors.
Bitcoin has historically undergone cycles of bull and bear markets seemingly unaffected by macroeconomic factors. The price tends to rise during bull markets and fall during bear markets, with patterns showing each bull market lasting longer and reaching higher prices than the previous one, followed by a potentially lengthy bear market.
Examining Bitcoin’s life cycle using the LOG chart, analyzing bear market downturns, a Bitcoin bear market typically concludes around 85% off the prior market’s all-time high (ATH).
NOTE: TO SEE IMAGES CLEARLY, PLEASE OPEN THEM IN A NEW TAB (RIGHT CLICK > OPEN IMAGE IN NEW TAB).
Bear market downturns
Please see the chart below:
We fell short of the 85% threshold during the 2022 bear market, leading some traders to speculate about further decline.
Reaching an 85% drawdown would mean BTC dropping to around $10k, similar to previous bear market lows. This explains why many “bears” are calling for BTC to reach $10k despite the recent 50% price increase.
Now that we’ve experienced a 77% drawdown, can we assume that the bottom has been reached? It seems likely since drawdowns are decreasing naturally with each cycle.
However, several other indicators need consideration when assessing BTC’s bottom.
Yearly chart of BTC
Please see the chart below:
Do you notice a pattern?
Aside from its first few years, displaying a yearly red candle followed by four green yearly candles, the last two bear markets have shown a pattern of a yearly red candle followed by three subsequent green yearly candles as the market has grown.
According to the above chart, we have seen the yearly red candle and started to put in our first green yearly candle, potentially the first of three.
Here is a table of the year-by-year returns:
But is it really that simple?
Let’s take a look at the halving cycle, a longstanding theory in predicting Bitcoin tops, bottoms, and turns for its life cycle – noting that it is yet to fail.
Halving Cycle & 200 EMA
The price of Bitcoin exhibits distinct patterns before and after its halving events, which occur when the mining reward is halved. Typically, there is a 2-year rally following each halving, followed by a bear market and consolidation phase leading up to the next halving.
In the most recent cycle, Bitcoin reached its lowest point roughly 518 days prior to the halving, and in this recent bear market, if it was the bottom put in, hit a low of $15,500 around the 500-day mark. It’s worth noting that during the last bear market, BTC remained below the 200-day moving average for 386 days, which we have now broken out of, flipping it to support, after 381 days beneath it as additional confluence.
Please see the chart below:
The 200 EMA (Exponential Moving Average) for Bitcoin is a technical analysis indicator that calculates the average price of Bitcoin over the past 200 trading days, with more recent prices given greater weight than older prices.
The 200 EMA is considered by some traders and analysts to be a significant level of support or resistance for Bitcoin’s price. If the price of Bitcoin is above the 200 EMA, it is considered to be in a bullish trend, while if it is below the 200 EMA, it is considered to be in a bearish trend.
The current query intriguing risk-on traders is whether Bitcoin and the cryptocurrency market have hit the lowest point in the current cycle.
With Bitcoin’s value already up by approximately 50% in 2023, traders and investors are questioning if the market has reached its bottom. This article aims to explore various arguments supporting and opposing the notion of Bitcoin bottoming out.
Additionally, the article delves into a novel challenge for Bitcoin: navigating a severe macroeconomic cycle without the aid of quantitative easing, which has been a support since the Global Financial Crisis.
Let’s begin by examining the straightforward arguments favoring Bitcoin’s bottoming out, disregarding macroeconomic factors.
Bitcoin has historically undergone cycles of bull and bear markets seemingly unaffected by macroeconomic factors. The price tends to rise during bull markets and fall during bear markets, with patterns showing each bull market lasting longer and reaching higher prices than the previous one, followed by a potentially lengthy bear market.
Examining Bitcoin’s life cycle using the LOG chart, analyzing bear market downturns, a Bitcoin bear market typically concludes around 85% off the prior market’s all-time high (ATH).
NOTE: TO SEE IMAGES CLEARLY, PLEASE OPEN THEM IN A NEW TAB (RIGHT CLICK > OPEN IMAGE IN NEW TAB).
Bear market downturns
Please see the chart below:
We fell short of the 85% threshold during the 2022 bear market, leading some traders to speculate about further decline.
Reaching an 85% drawdown would mean BTC dropping to around $10k, similar to previous bear market lows. This explains why many “bears” are calling for BTC to reach $10k despite the recent 50% price increase.
Now that we’ve experienced a 77% drawdown, can we assume that the bottom has been reached? It seems likely since drawdowns are decreasing naturally with each cycle.
However, several other indicators need consideration when assessing BTC’s bottom.
Yearly chart of BTC
Please see the chart below:
Do you notice a pattern?
Aside from its first few years, displaying a yearly red candle followed by four green yearly candles, the last two bear markets have shown a pattern of a yearly red candle followed by three subsequent green yearly candles as the market has grown.
According to the above chart, we have seen the yearly red candle and started to put in our first green yearly candle, potentially the first of three.
Here is a table of the year-by-year returns:
But is it really that simple?
Let’s take a look at the halving cycle, a longstanding theory in predicting Bitcoin tops, bottoms, and turns for its life cycle – noting that it is yet to fail.
Halving Cycle & 200 EMA
The price of Bitcoin exhibits distinct patterns before and after its halving events, which occur when the mining reward is halved. Typically, there is a 2-year rally following each halving, followed by a bear market and consolidation phase leading up to the next halving.
In the most recent cycle, Bitcoin reached its lowest point roughly 518 days prior to the halving, and in this recent bear market, if it was the bottom put in, hit a low of $15,500 around the 500-day mark. It’s worth noting that during the last bear market, BTC remained below the 200-day moving average for 386 days, which we have now broken out of, flipping it to support, after 381 days beneath it as additional confluence.
Please see the chart below:
The 200 EMA (Exponential Moving Average) for Bitcoin is a technical analysis indicator that calculates the average price of Bitcoin over the past 200 trading days, with more recent prices given greater weight than older prices.
The 200 EMA is considered by some traders and analysts to be a significant level of support or resistance for Bitcoin’s price. If the price of Bitcoin is above the 200 EMA, it is considered to be in a bullish trend, while if it is below the 200 EMA, it is considered to be in a bearish trend.
As mentioned, we have recently moved above this 200 EMA and flipped it to support, for the first time in over 300 days.
Simple, yet effective, and many analysts and investors use this indicator in confluence with others to support the claim that the market has turned bullish.
And now the chart, with our halving comparisons:
As per the above, you can definitely see some similarities starting to form with the recent low put in. Close to an 85% drawdown following a large bull cycle, with roughly 500 days to the halving.
If going off the cycles alone (without any macroeconomic conditions taken into account), then this would seemingly paint the picture that the bottom is, in fact, in.
However, let’s not just rely on the chart, cycles, and halving’s alone. Let’s also examine some key indicators that many investors and traders use to determine whether the price of Bitcoin has bottomed.
Let’s look at some of those additional indicators below.
First, the Relative Strength index (RSI) chart for Bitcoin.
Relative Strength Index
The Relative Strength Index is a technical analysis indicator used to measure the strength and momentum of an asset’s price movement. It was developed by J. Welles Wilder in 1978 and has since become a popular tool for traders to gauge potential buying or selling opportunities.
The Bitcoin Relative Strength Index (RSI) is a variation of the RSI that is used specifically to analyze the price movements of Bitcoin. It is calculated by comparing the average gains and losses of Bitcoin’s price over a specified period of time. The RSI value ranges from 0 to 100, with values above 70 indicating an overbought condition and values below 30 indicating an oversold condition.
Traders use the Bitcoin RSI to identify potential buying or selling opportunities. For example, if the RSI value is above 70, it may suggest that the asset is overbought, and a price correction could be imminent. Conversely, if the RSI value is below 30, it may suggest that the asset is oversold, and a potential buying opportunity could be present.
Please see the chart below:
I have marked on the weekly BTC chart the times when the RSI has reached oversold territory (i.e., below 30) or has come very close to it.
As noted, an RSI value below 30 may suggest that the asset is oversold, indicating a potential buying opportunity.
If you examine the price increases for yourself, you’ll see that in 2018, this pattern led to a 370% increase in BTC price. From 2019 to the top in November 2021, this resulted in a 1700% increase in BTC price. Recently, in mid-2022 and again in late 2022, we entered oversold territory. Could we see similar price increases again?
Historically, this RSI indicator has been mostly accurate in indicating a bottom. As shown on the chart above, it has also been very accurate in depicting the tops.
Additionally, let’s now examine the monthly BTC/RSI chart.
Please see the chart below:
As I have noted on the chart, BTC’s RSI was at its lowest ever at the bottom of the monthly chart. Additionally, I have added the RSI midline (50).
The RSI 50 level is the midline that separates the upper (bullish) and lower (bearish) territories. In an uptrend, the RSI is usually above 50, while in a downtrend, it is below the RSI 50 level.
On BTC’s monthly chart above, you can see that every time the RSI has fallen below the midline, it has signaled a bottom.
This is a very simple indicator, but it is still relevant in the broader context, especially when studying Bitcoin’s relative price action over the course of its history, without considering other factors such as wider macroeconomics.
Another signal of interest, particularly for mining enthusiasts, is the Bitcoin Hash Ribbon indicator.
Bitcoin Hash Ribbon Indicator
The Bitcoin Hash Ribbon indicator serves as a technical tool aiding traders and investors in assessing the condition of the Bitcoin mining industry. It operates on the premise that when the hash rate of the Bitcoin network (the total computing power of all miners on the network) experiences sustained downward movement followed by an upswing, it often signifies the initiation of a new bull market.
Derived from two moving averages of the Bitcoin network’s hash rate – the 30-day moving average and the 60-day moving average – the Hash Ribbon generates a buy signal when these two averages cross. This indicates that miners are re-entering the network, suggesting a potential bull market on the horizon.
The Hash Ribbon has successfully predicted several major market cycles in Bitcoin’s history, including the 2013 bull market and the recent bull market that began in 2020.
It stands out as one of the most reliable mid-term indicators in Bitcoin’s history.
Let’s examine the Hash Ribbon indicator in the context of the recent bear market.
Please refer to the chart below:
On the weekly chart, significant buy signals are highlighted through the Hash Ribbons indicator on the Bitcoin chart, with observable outcomes post these signals.
Massive upward movements have been witnessed after instances of miner capitulation.
This indicator flashed blue again in 2023, resulting in a 50% increase in Bitcoin value.
What adds intrigue to this recent Hash Ribbons buy signal is its depiction of the most severe Bitcoin miner capitulation since 2016, possibly ever. The Hash Ribbons capitulation recorded the lowest Bitcoin hash rate reading in 2022 as miners faced bankruptcy and defaulted under the immense pressure of squeezed profit margins globally.
Please refer to the chart below:
It is noteworthy that this event coincided with adverse weather conditions putting strain on the Texas power grid, leading to the forced closure of many miners.
However, despite disruptions caused by colder weather conditions, on-chain analysis suggests that miners were selling off. Headlines during that period highlighted some of the largest mining companies going bankrupt.
Once again, a glance at the chart reveals that this signal flashed in the initial weeks of January 2023, resulting in a remarkable outcome:
An almost 50% increase since the signal flashed.
Examining past occurrences of this signal based on the first chart:
- Dec. 2011: +76% in 15 days,
- Jun. 2012: +156% in 58 days,
- Feb. 2013: +1195% in 61 days,
- Jan. 2015: +13% in 43 days,
- May. 2015: +40% in 66 days,
- Aug. 2016: +96% in 127 days (and about +4500% in 469 days),
- Jan. 2019: +250% in 167 days,
- Dec. 2019: +46% in 47 days,
- Apr. 2020: +41% in 38 days,
- Jul. 2020: +35% in 36 days,
- Dec. 2020: +250% in 133 days,
- Aug. 2021: +61% in 95 days,
- Aug. 2022: -25.6% in 94 days (this only flashed on the daily chart).
From this, we can deduce that the signal has flashed 13 times in BTC’s history, being wrong only once (unconfirmed on the weekly chart). It is crucial to emphasize that the weekly chart is more pivotal and reliable than the daily chart in this regard.
Given this evidence, the Hash Ribbons indicator provides compelling reasons to believe that we have indeed hit bottom.
Now, let’s delve into a different mining indicator, an on-chain indicator known as the Bitcoin Puell Multiple.
Bitcoin Puell Multiple
The Bitcoin Puell Multiple serves as a technical analysis indicator used to evaluate the relative value of Bitcoin within the context of its mining industry. It operates on the premise that the profitability of Bitcoin mining tends to follow a cyclical pattern, with periods of high profitability succeeded by periods of low profitability.
The Puell Multiple is calculated by dividing the daily value of newly mined Bitcoin (in USD) by the 365-day moving average of the daily value of newly mined Bitcoin. A low Puell Multiple suggests that the mining industry is relatively undervalued, while a high Puell Multiple suggests that the mining industry is relatively overvalued.
Historically, the Puell Multiple has proven to be a useful indicator of market cycles in the Bitcoin industry, with low readings often coinciding with market bottoms and high readings signaling market tops.
Please refer to the chart below:
On January 5th, 2023, when BTC was priced at $16.8k/USD, the Puell Multiple broke its downtrend after Bitcoin had ‘bottomed’ at $15.5k/USD.
From that point onward, miner earnings have seen a notable uptick, akin to the duration of rallies following the crossing of the ‘1’ line. This trend has historically paved the way for an increase in Bitcoin’s price.
Kindly refer to the chart below:
Source: Cryptocon/LookingIntoBitcoin
As evident from the above chart, the correlation between this indicator and Bitcoin’s price is apparent throughout BTC’s history.
Note: BTC’s price is represented by the black line, Puell Multiple by the orange line.
When the Puell Multiple has reversed and started to decline sharply, Bitcoin’s price has followed suit. Conversely, breaking the downtrend in the Puell Multiple has resulted in a sharp increase in miner revenue, and once it has crossed the ‘1’ line, Bitcoin’s price has typically surged.
The green arrows and green boxes on the Puell Multiple chart indicate that when the price has started to increase, coinciding with the Puell Multiple going above ‘1’, the green boxes on Bitcoin’s price chart also show the same.
This seems to be a promising confluence with another miner indicator, the Hash Ribbons!
Another on-chain indicator to consider is Bitcoin’s MVRV Z-score.
MVRV Z-score
The Bitcoin MVRV Z-Score is a metric utilized to assess the current state of the Bitcoin market by comparing its market value to its realized value. The metric relies on the MVRV ratio, derived by dividing Bitcoin’s market capitalization by its realized capitalization.
Bitcoin’s market capitalization is computed by multiplying the current price of Bitcoin by the total number of Bitcoins in circulation. Realized capitalization, on the other hand, determines the value of Bitcoin based on the price at which each unit of Bitcoin last moved on the blockchain, representing the average cost basis of all Bitcoin holders.
The MVRV Z-Score is calculated by subtracting the current MVRV ratio from its long-term average and dividing by the standard deviation of the MVRV ratio. The resulting value gauges how far the current MVRV ratio deviates from its historical average, expressed in terms of standard deviations.
A high MVRV Z-Score suggests Bitcoin is overvalued, while a low MVRV Z-Score suggests undervaluation. Traders and investors use the Bitcoin MVRV Z-Score to identify potential buying and selling opportunities based on market trends and sentiment.
Now, let’s examine the MVRV Z-Score chart below:
Pay attention to the areas I’ve circled and the arrows (in red).
Note the instances where the MVRV Z-Score has broken out of the lower band (red circles), coinciding with a breakout in Bitcoin’s market capitalization, surpassing the realized market capitalization (red arrows).
This breakout occurred again at the start of January. Could we witness another substantial increase in Bitcoin’s market capitalization corresponding to this breakout from the lower band? Potentially. It’s another intriguing on-chain indicator that has proven reliable in the past.
Now, let’s briefly explore some Bitcoin-specific indicators that could indicate we haven’t hit the bottom before delving into the broader financial markets’ influence on the cryptocurrency market and BTC’s bottom.
First and foremost, the most evident factor is that we have yet to break out of this local range that has been forming for the past 8 months or so.
June to February Bitcoin Range
Please refer to the chart below:
Many traders and investors consider this as a significant area of validation if broken for a bullish trend. Until then, the bottom is not in, given that we could continue ranging for additional weeks or even months unless the range is broken and turned into support. This is particularly crucial if we continue to range while macroeconomic conditions worsen.
Another reason is simply that the -77% drawdown does not meet the -85% expectation of a drawdown in a bear market. I presented this as an argument for, but some analysts are adamant, stating that BTC could still drop another 50-60% from its current price to reach that low.
-77% Drawdown not enough?
This notion also implies that this drop would bring us to important support and liquidity levels.
Please refer to the chart below:
As seen in the chart above, an -85% drawdown would bring us right to that area of support and liquidity provided in the 2019/20 market, a key area of confluence.
It is highly probable that if we can’t break through this range and see support levels lost rapidly (especially in worsening macroeconomic conditions), this area would be revisited if the $15.5k low was breached.
Another concept being discussed by many analysts is the ‘Wall St. Cheat Sheet,’ which indicates the psychology of a market cycle.
The psychology of a market cycle
The majority pointing to this ‘cheat sheet’ believe we are at the ‘anger’ stage. Others think we may be in the ‘disbelief’ rally. Only time will tell! I have marked these stages with arrows below.
Please refer to the image below:
Certainly, if we are at the anger stage, this may provide further support to the -85% drawdown idea, aligning with a movement to the $10-$12k BTC region before a rally.
All the charting, indicators, and on-chain analysis above present compelling arguments either for or against Bitcoin having reached its bottom. However, what about Bitcoin’s potential to rally in the face of significantly different macroeconomic conditions than it is accustomed to?
Divergent Macroeconomic Conditions
Based on historical patterns, there’s a possibility that Bitcoin has hit its lowest point after a year-long bear market and could potentially experience a value surge. However, due to the interconnectedness of cryptocurrencies and the stock market, the significance of such an outcome may be diminished, and cryptocurrencies might face additional declines.
Over the past year, Bitcoin and other cryptocurrencies have formed a strong correlation with the stock market, deviating from their previous independent performance. This shift is attributed to a reduced demand for risk-sensitive assets driven by high inflation and rising interest rates.
The correlation between cryptocurrencies and the stock market remains noteworthy, implying that fluctuations in the NASDAQ and S&P 500 are the primary factors influencing Bitcoin’s movements. Additionally, the current macroeconomic outlook for both stocks and Bitcoin appears somewhat negative in the long term.
The correlation coefficient between BTC and these markets has never been higher, thanks to institutional investment.
It’s essential to note that previously, cryptocurrencies, and BTC, in particular, were indifferent to broader macroeconomics and stock markets. However, with institutional adoption in 2020 and 2021, they are now significantly affected.
Before the 2022 bear market, BTC had never encountered a macro-environment where the Federal Funds Rate exceeded 2.5%. In 2023, the Federal Funds Rate is approaching 5%.
To put it simply, what happened in 2022 was that BTC faced some of the most aggressive tightening in monetary policy in its history, following the quantitative easing that had occurred since 2009 (when BTC was created) and the wild money printing during the COVID-19 pandemic. Some sources estimate that over 80% of USD in existence was printed between 2020-2021.
Now, in 2023, governments and their banks are anticipating a recession.
Given these circumstances and BTC’s high correlation to the stock markets, potential bearish macro developments, like an impending recession, might impede BTC from replicating its historical performances during times of easing macro conditions.
This is crucial, considering all the aforementioned arguments for Bitcoin potentially bottoming out. Most, if not all, of these indicators and on-chain analyses have been observed throughout Bitcoin’s life cycle when macro conditions were easing, not becoming restrictive.
Does this mean we can automatically dismiss the historical evidence presented by the indicators and on-chain analyses? Certainly not. However, investors should exercise caution given the context and not solely rely on indicators to form their judgments.
Given the context, does this mean we could potentially look to other financial markets, considering the correlation between them, to make judgments that may align with our BTC-specific ideas? Absolutely.
There’s a significant debate over whether both the NASDAQ and S&P 500 have broken out of their long downtrends and bottomed (much like BTC) or if this is a relief rally/bear market rally and bulls are about to be crushed.
As mentioned earlier, many of the movements in all markets in the last 12-14 months have resulted from tighter monetary policy by governments to lower inflation. These recent rallies have been induced by inflation starting to decrease, with inflation around 9.1% in the middle of 2022 and coming in at 6.4% in the recent Fed meeting.
Refer to the chart below:
Hence, you can observe a downtrend.
However, the recent CPI data at 6.4% definitely spooked wider markets, with it coming 0.2% above the consensus of 6.2%, leading investors to believe that the US Feds will continue monetary tightening and hiking interest rates.
The stock markets (namely the Nasdaq and S&P) showed massive promise to start 2023 as mentioned, but recently have retreated back to crucial support levels as investors have been pondering how the Feds will approach the upcoming months.
Before we look at the stock markets, one of the most important charts to Bitcoin is the DXY, given its inverse correlation.
DXY (US DOLLAR)
The DXY is a ticker symbol for the U.S. Dollar Index, which is a measure of the value of the United States dollar relative to a basket of foreign currencies. The index is weighted by the trade-weighted value of the US dollar against a basket of six major currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
The DXY was first introduced in 1973 and is used as a benchmark for measuring the strength or weakness of the US dollar in the foreign exchange market. It is widely followed by traders, investors, and economists as an indicator of the health of the US economy and the global economy as a whole.
The DXY has mostly had an inverse correlation to Bitcoin over its lifecycle.
Refer to the chart below:
This is a slightly old chart, but you get the idea with the inverse correlation.
Given this is the case, for BTC and even wider commodity and stock markets to flourish, the DXY needs to come down, but it has been a pain to deal with for all investors given the rising inflation in the US.
However, since topping out, and inflation has begun to downtrend (as shown before), the DXY has begun to tumble, coinciding with the relief rallies in BTC and other stock markets.
Recently, given the weak CPI data and uncertainty in the markets, the DXY has reversed from as low as 100.8, back up to the 104s, retesting its uptrend line as resistance that was broken prior around the start of January when the markets really started to heat up.
See the chart below:
Really, the DXY needs to follow the path I have drawn if we are to get the breakouts in BTC and wider stock markets that I will show shortly.
If the DXY breaks above 105 and continues to head up, this would most likely coincide with worsening CPI data and another harsh interest rate hike by the Feds. This would most likely create widespread fears in all markets.
A big watch this one.
Let’s now take a look at the wider US stock markets.
Firstly, the NASDAQ.
NASDAQ
The NASDAQ has broken its year long downtrend, similarly to BTC, and began to put in a rally to kick off 2023.
Refer to the chart below:
Since its local bottom, the NASDAQ has rallied as much as 20% in 2023, but off the back of that recent CPI data, and a potential hawkish Fed, has lost steam and began to retreat.
Is it losing crucial support and not able to break resistance? It has shaved roughly -6% in the last two and a half weeks.
Additionally, let’s take a look at the ES (S&P 500) chart.
ES (S&P 500)
Refer to the chart below:
Given both markets have broken their year long downtrend, this occurred right around mid-December to January, in which BTC also started to put in serious momentum.
So if BTC was to have continuation, and it remain highly correlated to the stock market charts, what would this require in those markets to give BTC that push to potentially break out of its current range and present a more bullish confirmation?
It would require a lot. Most likely a pause in interest rates (or insignificant hike), which given the recent CPI data, could seem unlikely by the Feds.
Refer to the chart below:
A highly technical chart involving Elliott Wave theory and Fibonacci Retracements, however, this chart does present the notion that technically in the coming months there could be a continuation in this midterm rally if fundamentals persist.
Note: if this were to occur in the S&P and wider markets, note the final C leg. This would create a deflationary bust in which we would definitely then go into recession. This would most likely occur in Q3 or Q4 of 2023.
Below is a different look at this chart.
Refer to the chart below:
Similar notion, with counts, however there is also a clear evident large inverse head and shoulders on the S&P, adding confluence to the idea of this strong move.
How would this then appear on the charts of Bitcoin?
A break-out definitely to the $28-$32k level at a minimum, with possible higher targets.
Would that confirm a bottom officially in BTC? In most people’s minds yes, but that level at $28-$32k is crucial to break through as well, as if the stock markets put in a run, for instance, the ES to that level, they can still make a hard reversal, which BTC can do too.
Can BTC pump to the level above and then reverse?
This could come in the form of a Bearish Cypher Harmonic.
Refer to the chart below:
A highly technical chart again, however a very real possibility that could present a ‘top’ at this range, into a strong reversal, particularly if the stock markets put in that breakout, into a reversal too.
These ideas would also align with the March Fed meeting in which there is a potential for a harsher rate hike, given the weak CPI data. All a big ‘if’, I know, but these are all real possibilities any investor should be aware of!
Additionally, could this validate the -85% bear market expectation? And cause such a reversal that it would hit the $10-$12k area?
It’s possible, let me show you.
Please see the chart below:
Seems a fair bit of confluence with the .786, harmonic and descending parallel channel.
A different look:
Very interesting!
There is the possibility we never make it to the $28-$32k level, in that case, it would most likely mean the stock markets could simply break down from these support levels and fail to break upper resistance, which in-turn could lead BTC lower from its current levels.
This is the general consensus.
Of course these are just trading ideas and technical patterns that can always be invalidated!
You are most likely reading the following information wondering how the hell can this guy at all believe there is the potential for a continued rally or bullish continuation, given how dire the macroeconomic situation is?
I am a technical trader. The charts say it’s a possibility.
There is also some additional confluence that is evident in which the mainstream media, the governments and its banks do not tell you.
The above chart represents the net % saying recession is likely in the next year (i.e. 2023).
The last two times prior is when the media, market and everything in between called for a recession, or one was occurring.
Coincides perfectly with the ’09 and ’20 bottoms in the market. November ‘22?
I will show another chart below, showing that when investors and traders are the most short in history, price action tends to go in the exact opposite direction.
Please see the chart below:
Interesting isn’t it?
Paints the notion that these recession calls are far too early.
I am not stating we won’t endure a recession.
It presents the idea that a recession could come later. If we couple together the DXY reversal, stock market booms, and risk-on assets flying, that if a recession did not come now (or in upcoming months), that it would most likely actually come later in the year, in a deflationary bust that would absolutely kill all markets.
However, if we got this huge push in liquidity into the market and investors are hungry, BTC can easily put in new ATHs. And I mean that!
However, this would cause the deflationary bust I speak of, in which we would see new lows on BTC (well under $15.5k most likely), and would most likely follow my EW Count on the ES in which you see that really large pullback.
But, can we only look to the US fiat currency and its stock markets for indications of Bitcoin’s price action and if a bottom is in?
It seems like a lot of investors are overlooking Eastern economies.
Bitcoin is looking like it is becoming increasingly correlated with Chinese stocks. As mentioned, over the last 12 months, Bitcoin has been heavily correlated with US stocks. Are we starting to see a change? You can see the comparison chart below.
Eastern Economies
Thanks to tedtalksmacro for a lot of the following information:
Just last week, the Chinese central bank performed its single-largest liquidity injection to help support their economy out of historically depressed levels.
Whilst most investors and analysts are focused on how the Fed is tightening, and its direct impacts on risk-on assets this cycle, are they overlooking the scale of easing in the east?
What needs to be remembered is that whilst yes, the US boasts the world largest economy, thus, it directly impacts all wider financial markets across the globe, China boasts the world’s second largest economy and is expanding at a pace 2.2% faster than the US.
Additionally, the People’s Bank of China (PBoC) is the world’s third largest central bank with over $6 trillion in assets, clearly playing a large role in global liquidity.
As a result of abandoning the ‘zero covid’ poly in late 2022, the economy of China has definitely begun to recover. Will we see it back at its heavily expansive growth that it was known for for much of the 21st century?
Clearly the abandonment of this policy has helped surge demand and resume consumption, with new Chinese bank loans hitting a record $4.9 trillion Yuan in January, a 23% increase year-on-year.
The PBoC are definitely coming to play and keen to play their part in stimulating the great Chinese economy once again.
There are even some expectations from some economists and analysts that the PBoC will cut rates in the coming months to further support and promote a prolonged economic recovery.
Moreover, Japan (the world’s 4th largest central bank), is also injecting liquidity alongside China into the global markets, combining to easily outpace the US Federal tightening efforts.
Sometimes analysts and investors alike get caught up in narrowing their macro view to just the US, as opposed to the entirety of global liquidity and other crucial central banks.
For instance, yes, the federal reserve of the US is tightening, however, per the above, some of the other world’s largest central banks are beginning to ease, causing an uptick in global liquidity, as opposed to the notion that global liquidity is simply falling due to the US’ stance.
Conclusion
What conclusions can we draw from this analysis?
The cryptocurrency market, particularly Bitcoin, is not linked to any particular entity, central bank, or economy. It is primarily driven by liquidity, which could come from risk-taking investors in the East, such as Japan, China, and Hong Kong. This liquidity could potentially offset the tightening in the US, but the DXY pump and falling stock markets could pose challenges.
There is a possibility of a worldwide explosive rally in the coming months, coinciding with the Eastern economies easing and a soft landing in the US stock markets, allowing investors worldwide to dip their toes. This could validate the S&P chart and lead to a much larger push in Bitcoin’s price, indicating that we bottomed out at $15.5k and potentially seeing much larger reversals. However, if the DXY continues to rise and the US stock markets break down, despite the Eastern economies’ liquidity, it may not be sufficient to prevent further pain.
It is unclear if this is a local or generational bottom. Investors can only work off the charts, indicators, and data to form a probable conclusion, and anyone claiming to know with absolute certainty is wrong.
Overall, there are many arguments for and against, and numerous ideas for the year ahead. This research article aims to help readers form their own opinions on whether or not the bottom has been reached.
Good luck to all!
