Bitcoin has been above the $10,000 level for over two months; that’s the longest period in recorded crypto history. In this special edition, we’ll analyze bitcoin’s superb-looking macro picture in addition to the upcoming US-elections which are just a couple of weeks out.
Let’s dig in.
For several months now, bitcoin’s price-action has more or less moved in tandem with legacy markets like the S&P 500, the US Dollar index, and gold, but this correlation might be nearing its end.
More specifically, bitcoin has shown an inverse correlation with the USD index in similar fashion to the S&P 500 and gold. More recently, however, bitcoin’s correlation seems to have shifted more closely to replicating that of gold, having hit an all-time-high 60-day gold correlation earlier this month. While these correlations are evident now, some analysts think that the markets will decouple sooner rather than later.
In fact, prominent on-chain analyst Willy Woo has pointed out on Twitter that the correlation will come to an end as bitcoin’s price closes the gap with its diverging fundamentals.
Woo shared the above chart provided by data aggregator glassnode, which shows a strong uptick in unique active bitcoin users.
“If you want to see data behind the upcoming decoupling of BTC from the stock markets powered by BTC’s internal adoption, here’s some @glassnode data. This is the active users of BTC after filtering for unique players (ignores multi-wallet addresses belong to one entity).”
Galaxy Digital CEO and well-known bitcoin bull Michael Novogratz said late last night that it’s a dangerous time to be in stocks right now as the presidential election draws closer. While being bearish on the US Dollar, Novogratz is bullish on both bitcoin and gold, but strikes a similar tune as MicroStrategy’s Michael Saylor, saying that bitcoin has more upside than gold.
Briefly, Mike is bearish on tech stocks, believing that “we saw the high in the Nasdaq, we saw the high in Apple, we saw the high in Tesla,” going on to say that the Nasdaq “can easily trade down to 10,000, another 10%,11% down from here.”
Mike believes Biden to be the likely winner in the upcoming election, and thinks that volatility will stay high and a risk-off sentiment will take over.
“I think it’s a really dangerous time to be in the market. I’ve taken a lot of risk down and kind of waiting for better, more clarity and better entry points … I do think selling the dollar will be a trend that continues.”
Speaking about the stock-market-bitcoin correlation, Mike said that these will become increasingly spurious and will break down.
“The macro story is so promising for shorting the dollar, going long gold, and going long crypto, and we are seeing more and more adoption.”
All in all, the Galaxy Digital CEO believes that the average investor should “have 1% to 3% of their portfolio in bitcoin. It’s an amazing hedge.”
His comments come as no surprise given his history as a strong bitcoin supporter. At the same time, however, this latest rhetoric comes in contrast to what was said in April, when he suggested the possibility of giving up on bitcoin as it traded at $7,000.
The CEO has previously called for a $40,000 bitcoin price-tag in 2019 and expects bitcoin to retest $20,000 this year.
Bitcoin (HTF) inches closer to $11,000
Just like clockwork, bitcoin bounced off the upwards trending support and the 20-weekly ema, as outlined last week.
Before delving straight in, let it be known that bitcoin has been firmly trending above the $10,000 level (discounting wicks) for an all-time high of 63 days. This has never happened before in recorded history.
At the time of writing, the king crypto successfully breached the $10,500 pivot point as it attempts to reclaim the $11,000 area.
Clearly, bitcoin is still range-bound within a lower-time frame setting, and a sustained move beyond the range will inform targets on higher time-frames. Should bitcoin reclaim $11,000 and close several 4-hourly candles above it, then one could expect the trend to spill over into the daily time-frame. This would, in turn, inform a move towards the local $12,000 daily high.
More importantly, however, bitcoin’s macro structure is suggesting that we could be on the precipice of a major move to the upside.
Considering bitcoin’s performance on a 12-month basis, one can observe that the $10,000 level acted as a major pivotal area which technically influenced price-action to various degrees. Every time bitcoin hit this level, the price plunged about 38%, 68%, and 16% from peak to trough.
Today, this pivotal area appears to have flipped bias as price refuses to meaningfully close beneath the psychological level. If we average out this performance and assume that bitcoin could perform similarly in the event of an upward thrust, then a 40% move would put the king crypto at exactly $14,000 — the 2019 all-time high.
Bear in mind that this is highly speculative and is more fun than anything else. However, it’s great to find relatively meaningful confluence for bullish targets should upward momentum carry on.
On the flip side, bitcoin’s bearish scenario hasn’t changed since the last mailout, with the .382 fib ($9,000) measured since the March dump being the first target in the event of a breakdown.
Given bitcoin’s correlation with traditional markets, the USD index (DXY) would probably continue to strengthen in such a scenario, while most assets would presumably correct, including bitcoin, gold, the Nasdaq, and the SPX.
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Finally, continued bitcoin upside on a macro perspective depends on two factors:
1. Continued stock market and gold upside.
2. A major decoupling event.
As of this moment, both factors are likely to happen. Indeed, further upside in legacy markets is probable given the approaching US elections and the politicization of financial markets. At the same time, a decoupling event is all but assured, it’s only a question of time.
Prescriptum: This analysis is by no means an endorsement of either political party. If you’re uncomfortable reading or engaging with different opinions, I suggest you unsubscribe from this newsletter.
If stocks continue to rally and the Fed and Congress lock arms to provide more stimulus in any kind of format, then one should expect markets to rally across the board again, which would probably pull bitcoin along for the ride.
Now that US elections are fast approaching, stock market volatility should be expected as both factions play with their favourite behind-the-scenes political football.
Expanding on the story above, Novogratz believes that Biden will win the US Presidential election and that shorting tech stocks right now is a good idea. This would in turn have a cascading effect on other markets and would drag bitcoin down pre-election, in his view.
However, it’s by no means certain that Biden will win the election. In fact, this is the less likely scenario in my humble opinion.
Indeed, most US presidents serve two terms and while I am not American; as an outsider, the situation looks similar to 2016 but much worse for democrats. The can of worms that’s currently unraveling with regards to openly far left protests and the political alignment of democrats with this cause hasn’t resulted in the momentum one would expect for a likely winner. Indeed, the democratic party seems to have painted itself into a corner with mistake after mistake — notice how the BLM cause has shifted dramatically in public perception since the original event that set things off, which drew mainstream sympathy.
On the other hand, the Trump base seems relatively stronger, emboldened by the seemingly confirmed narrative of far leftist politics. Needless to say, the US administration is hardly capitalistic, having openly concertized corporate socialism and universal basic income for all in 2020 following the lockdown. However, this is not the battleground on which the US election is being fought, given that both parties are in relative agreement on cranking up the money printers.
From a geopolitical perspective, both are seemingly aligned but the Trump administration comes out much stronger in criticizing what he calls the ‘Chinese virus,’ all the while democrats are in a precarious situation geopolitically. China’s method of governance is an open secret most people know all too well, so how does one aligned with far leftist politics criticize China while remaining true to the narrative?
Indeed, the chosen battlegrounds for this election are predominantly social issues and the culture war, of which either side has an entrenched narrative.
In this culture war, it’s safe to say that Trump is winning by a long shot, and is also in complete control of the meme war, with his son Trump junior fighting tooth and nail to ensure that victory. By contrast, democrats seemingly cannot ‘meme.’ The other day, popular podcaster Joe Rogan said something to the effect of: “people on the left hate the fact that they have to pretend to like Biden.” This is paraphrased but sums sentiment up quite nicely.
As such, I see very little evidence besides sketchy polls that suggest a Biden victory. This might change in the coming weeks, but to bet on a Biden presidency as of this moment makes little sense assuming normal US election procedures.
On the flip-side, a sustained crash in the stock-market would adjust the odds towards Biden, but is this likely to happen? With another stimulus package around the corner, it would be political suicide for either party to down-vote it before the election. If this is timed well, then a Trump presidency is even likelier.
Either way, none of this matters for bitcoin in the long run. Provided central bankers keep doing what they’re doing, bitcoin price-appreciation is inevitable. On another note, this will probably be the last US election where fiscal (and monetary to a lesser degree) policy isn’t a main point of discussion.
Catch you next time.