Bitcoin analysis
In a recent micro-update from Capriole, founder Charles Edwards provided an intriguing analysis comparing the current low volatility of Bitcoin to its historical behavior in 2016. As Bitcoin’s price hovers around the $29,000 level, experts are closely monitoring for indications of a potential bullish surge.
“Bitcoin’s price is still at $29K, experiencing a sideways consolidation that has led to one of the lowest volatility periods in Bitcoin’s 14-year history,” Edwards observes. This extended low volatility phase is reminiscent of 2016, suggesting that a substantial price movement could be on the horizon.
Is a Bitcoin Breakout Around the Corner?
Although technical indicators point to a bearish decline from the $30,000 level, the lack of downward momentum provides a ray of hope for optimistic investors. “If the price was going to collapse, we would typically have seen that follow through by now,” the report mentions. Nonetheless, for a stronger bullish sentiment, “a daily close above $30K is needed at the very least as a technical confirmation of a failed breakdown.”
On the fundamental side, Bitcoin’s on-chain data continues to shrink, albeit at a slower pace. Upcoming decisions on several Bitcoin ETF approvals could potentially interrupt the current low volatility phase. “An approval could trigger a break from the current low volatility range. However, it’s best not to pre-empt this, as these decisions often get delayed. Confirmations are crucial to mitigate risk,” Edwards warns.
The report also emphasizes two key observations from the technical analysis:
- Since 2010, Bitcoin’s historical volatility has only been lower than today’s level in 2016. This suggests that a significant price move is on the horizon when volatility expansion (reversion to the mean) occurs.
- Bitcoin’s $30K breakdown has, so far, failed to follow through. A return to the Wyckoff structure at $30K would signal a failed breakdown and be a positive technical sign.
Bitcoin On-Chain Indicators Show Neutral Outlook
Capriole’s Bitcoin Macro Index, an all-encompassing tool that aggregates over 40 Bitcoin on-chain, macro market, and equities metrics into a machine learning model, currently scores at -0.36, indicating “Contraction.” While the short-term outlook appears neutral, the long-term perspective leans bullish. Notably, this strategy maintains long-only positions in Bitcoin, holding cash during slowdowns and contractions.
“Today’s Macro Index remains in a period of relative value (below zero), suggesting decent long-term value for multi-year horizon investors,” the report clarifies.
A valuable addition to Capriole’s analysis tools is the “Bitcoin Production Cost” model, which estimates the cost of mining a Bitcoin based on global average electricity consumption. This model indicates that Bitcoin is trading within a long-term value area, with the report speculating.
I’d be surprised if this holds until 2024.
Charles Edwards
In conclusion, Capriole’s analysis portrays potential long-term value amid the current bearish technicals. Drawing comparisons to 2016, the report implies that Bitcoin’s present low volatility phase may be a precursor to a bullish breakout.
“All else being equal, Bitcoin is like a beach ball held underwater. However, we remain in a technical breakdown, and we don’t know how long that hand will keep the ball submerged. Prudent risk management will wait for a technical confirmation before taking action.”
As Bitcoin’s expansion and contraction cycles are cyclical, only time will reveal if history will repeat itself, particularly in the context of a vastly different macro environment. As of the time of the report, Bitcoin price analysis remained static, trading at $29,445.
