In today’s micro update of Capriole, founder Charles Edwards presented a compelling analysis that draws parallels between Bitcoin’s current low volatility and its historic behavior in 2016. With Bitcoin’s price stagnant around $29,000, experts are watching closely for signs of a possible bullish breakout.
“Bitcoin price remains at $29,000, in a sideways consolidation that has created one of the absolute lowest volatility periods in Bitcoin’s 14-year history,” said Edwards. This prolonged period of low volatility is reminiscent of 2016, suggesting significant price movement is imminent.
Bitcoin Breakout Imminent?
While the technical data points to a bearish breakout from the USD 30,000 mark, the absence of downside momentum offers a glimmer of hope for bullish investors. “If the price collapsed, we would normally have seen it by now,” the report notes. However, for a more concrete bullish sentiment, “at a minimum, a close back above $30K on the daily time frame is required as technical confirmation of a failed breakdown.”
Fundamentally, Bitcoin’s on-chain data continues to shrink, albeit at a slowing pace. The upcoming decisions on several Bitcoin ETF approvals could potentially disrupt the current phase of low volatility. “An approval could represent a break from the current low volatility range. However, it’s best not to get ahead of this as these decisions are often pushed. Confirmations are essential to mitigate risk,” warns Edwards.
Delving deeper into the technical details, the report highlighted two key observations:
Since 2010, Bitcoin’s historical volatility is only lower than it was today in 2016. A major price move appears to be on the horizon as volatility increases (return to average).
Bitcoin’s $30,000 collapse has not happened (so far)… A pullback in the Wyckoff structure at $30,000 would represent a failed collapse and therefore be a very positive technical signal.
BTC On-Chain indicators are neutral
Capriole’s Bitcoin Macro Index, a comprehensive tool that aggregates more than 40 Bitcoin on-chain, macro market, and stock metrics into a machine learning model, currently scores at -0.36, indicating “Contraction.” This suggests that while the short-term outlook remains neutral, the long-term outlook appears optimistic. Remarkably, this strategy takes long-only positions in Bitcoin. Cash is held for delays and contractions.
“The Macro Index is still in a period of relative value (below zero) today, suggesting decent long-term value for investors with a multi-year horizon,” the report said.
A notable addition to Capriole’s analytics toolkit is the “Bitcoin Production Cost” model, which evaluates the cost of mining a Bitcoin based on global average electricity consumption. Currently, this model indicates that Bitcoin trades within a long-term value region, with the report speculating, “I’d be surprised if this holds up through 2024.”
In conclusion, Capriole’s analysis paints a picture of long-term potential value amid current bearish technical data. The report draws parallels to 2016 and suggests that Bitcoin’s current phase of low volatility could be a precursor to a bullish breakout.
“All else being equal, Bitcoin is like a beach ball underwater. Nevertheless, we are still in a technical glitch. We don’t know how long that hand will hold the ball underwater. Prudent risk management awaits technical confirmation before acting.”
With the cyclical nature of Bitcoin’s expansion and contraction cycles, only time will tell if history will indeed repeat itself; especially with the backdrop of a totally different macro environment. At the time of writing, BTC price remained stable and traded at USD 29,445.
Featured image by André François McKenzie / Unsplash, chart from TradingView.com