Bitcoin ETF Approval, Sell the news or Bullish Catalyst?
Bitcoin & Altcoin Market Analysis & Weekly Insight #13
We’ve seen continued strength from Bitcoin, as the price broke above $60,000 last week. Furthermore, we have had an announcement that a Bitcoin (futures) ETF has been approved in the US.
Some may have fears of a sell the news scenario, similar to how Coinbase listed on the Nasdaq on April 14th, the exact day that Bitcoin put in a top just shy of $65,000, before collapsing to lows of $47,000 just 11 days later, and $30,000 by May 19th. Just food for thought.
What is also the case, is that we have not seen any correction (on a daily timeframe) from Bitcoin since our current bullish move began at just under $41,000 on September 29th. It’s fair to say, at some point, there will be a correction coming, but that doesn’t (necessarily) mean Bitcoin will enter a bear market when this correction takes place.
The possibility of a sell the news event, and the fact that Bitcoin sits just below all-time highs, having not seen a correction throughout a 50% rise in value, is a compelling argument for not getting overexcited and potentially purchasing at an unfavourable time. That being realised, Bitcoin is still undeniably bullish.
Just a few months ago, in July, the topic of a retest of the previous highs would have been met with a lot of resistance. The market was in a state of fear, Bitcoin risked slumping as low as $20,000, some even called for lows closer to $10,000. This period of extreme fear happened to be your opportunity to get a great entry, by the way. Now, those who took that opportunity are able to sit comfortably and watch this bullish trend play out, to them, corrections will just be bumps in the road, all they want to see is higher highs and higher lows.
My thesis is that we will see new all-time highs for Bitcoin by the end of the year. This is on the basis that we have seen a quick recovery to the previous all-time highs. Because of the early stage, bullish market structure for Bitcoin, I see this ETF as a bullish catalyst for a subsequent move more than I see it as a sell the news market peak.
A bullish take on the approval of a Bitcoin Futures ETF could be formulated by looking at the price action of Gold following its ETF approvals in 2003 and 2004.
The first Gold-backed ETF Launched on March 28th, 2003, and listed on the Australian stock exchange, with Gold trading around $330. The first US Gold-backed ETF launched on November 18th 2004, with gold trading around $440. 8 years later, in 2011, gold traded at a price of $1900, an increase of around 480%.
It’s hard to say how much of a direct impact a gold ETF had on the price of gold after 2003 & 2004, however expecting a similar path to unfold for Bitcoin after its own ETF approval is pretty reasonable in my opinion.
The above chart highlights that over the long term, gold performed extremely well following ETF approval, increasing substantially. We can also see that following the Australian ETF approval in 2003, Gold prices rose in the short term as well. However, in 2004, following the US ETF approval, Gold experienced a short-term correction (Realistically this was more of a consolidation than anything bearish).
Altcoins
The Altcoin Season Index continues to suggest now is not the most optimal time to convert Bitcoin holdings into altcoin holdings. Whilst this is not a guarantee to be correct, I continue to trade Altcoins against Bitcoin conservatively, if at all.
We can see from the chart above, that over recent weeks, Bitcoin has been outperforming relative to Altcoins. This is shown by the declining line on this chart. The closer the line gets to 0, the more Altcoins Bitcoin is outperforming (out of the top 50 Altcoins).
When the line crosses the 25 mark, we enter Bitcoin Season, where almost every Altcoin is being outperformed by Bitcoin over a 90-day period. This is when I believe we approach the most optimal time to enter Altcoin positions. It’s a very practical approach, whereby we are trying to enter when Altcoins are at extreme discounts relative to Bitcoin.
I treat this chart like an oscillator showing oversold and overbought altcoin conditions relative to Bitcoin. Above 75, Altcoins are overbought, and an entry is definitely not something I would consider, the indicator suggests selling. Below 25 and Altcoins are oversold, making an entry more favourable.
Right now we are only just below 50, so this indicator is neither suggesting to buy nor to sell altcoins at this time, it is somewhat neutral (but declining towards Bitcoin Season).
Total Altcoin Market Capitalisation (TOTAL2), similar to Bitcoin, sits just below its previous all-time high. Even if Altcoins are not performing as well as Bitcoin, should Bitcoin break out to higher prices, it is likely Bitcoin will drag altcoins up with it, leading to a breakout.
As it stands, a breakout of the Total Altcoin Market Cap would complete a cup and handle formation, which is a bullish pattern.
A cup & handle pattern is completed with a successful break above the horizontal line of resistance. Traders often seek an entry on a backtest of previous resistance, which can become new support.
The TOTAL2 chart looks just as bullish as the Bitcoin chart, quickly recovering since the lows in May through to July. This suggests to us that if Bitcoin is bullish and is going to continue its ascent, then Altcoins likely will not see any significant corrections (broadly speaking) in their USD charts.
A failure to break above the horizontal resistance of approximately $1.4 trillion simply means we are in a neutral trend, changing to a more bearish trend short term, should we break below the next support level at $1 trillion. This support level is likely to be tested in the event Bitcoin sees a correction, unless we start to see bullish action for Altcoins in their Bitcoin trading pairs.
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