In a detailed market update, Charles Edwards, founder of Capriole Investment, provided an in-depth explanation analysis of Bitcoin’s current market position, highlighting a crucial shift towards an ‘expansion phase’ in the Bitcoin Macro Index. This transition is particularly notable because it parallels conditions observed prior to historic price increases in Bitcoin’s valuation.
Bitcoin has recently experienced a sharp rise, rising from $34,000 to an interim high of $38,000. After a brief period of resistance, the price corrected to around $36,500. Edwards highlights this move as a crucial technical win, with Bitcoin overcoming the key resistance benchmarks at $35,000 and remaining above the key resistance benchmarks at $35,000 on both the weekly and monthly time frames.
This consolidation above key resistance levels provides a bullish context in the high-time frame technical analysis, positioning Bitcoin in a strong technical position according to traditional market indicators. “The recent push into the 2021 range offers the best high-timeframe technical setup we’ve seen in years. Provided $35,000 is held on a weekly and monthly basis in November, the next significant resistance will be high ($58-65,000).
Bitcoin Macro Index is going to expand
At the heart of Edwards’ update is the shift in the Bitcoin Macro Index, a complex model that synthesizes more than 40 metrics covering Bitcoin’s on-chain data, macro market indicators, and stock market influences. The index does not take price as input and therefore offers a ‘purely fundamental’ perspective.
The current increase is the first since November 2020, and only the third time since the index’s inception, with the two previous occasions leading to substantial price increases in subsequent periods. Edwards explains this with a direct quote: “The transition from recovery to expansion is simply the optimal time to allocate Bitcoin from a risk-reward opportunity for this model.”
A look at the Bitcoin chart shows that the Bitcoin price rose by as much as 400% during the last bull run from early November 2020 to November 2021, after the Macro Index entered the expansion phase. The first historic signal was given by the Macro Index on November 9, 2016, followed by a massive bull run of almost 2,600% until Bitcoin reached its then all-time high of $20,000 in February 2018.
Short-term technical data and derivatives market analysis
In the short term, the technical outlook shows a mixed picture, according to Edwards. Derivatives markets indicate an overheated state, with short-term analysis suggesting a retracement is imminent. Edwards introduces the ‘Bitcoin Heater’ metric, recently launched on Capriole Charts, which aggregates various derivatives market data and quantifies the level of market risk based on the open interest and heating level of perpetuals, futures and options markets.
The chart below shows that when the Bitcoin Heater rises above 0.8, the market usually corrects or consolidates. “But there are major exceptions to the rule: such as the primary bull market rally from November 2020 through the first quarter of 2021. […] We should expect this metric to be high more often in 2024 (as it was in the fourth quarter of 2020 – 2021),” Edwards said.
The analyst concluded that the overall trend for Bitcoin remains positive, with key data points pointing to a strong bullish scenario. However, he also warned of potential short-term risks in the market for technical products and low-time derivatives. He believes these are common in the development of a bull run and can provide valuable opportunities when dips occur.
At the time of writing, BTC was trading at $35,626.
Featured image from Shutterstock, chart from TradingView.com