In the ever-volatile world of cryptocurrencies, Bitcoin’s recent low volatility has caught the attention of experts and analysts alike. Founder of Capriole, Charles Edwards, presents a compelling analysis that draws parallels between the current state of Bitcoin and its behavior back in 2016. With Bitcoin’s price hovering around $29,000, traders and investors are eagerly watching for signs of a potential bullish breakout. In this article, we delve into the analysis by Capriole and explore the implications of Bitcoin’s low volatility.
According to Charles Edwards, Bitcoin’s price has remained stagnant at $29,000, resulting in one of the lowest volatility periods in the cryptocurrency’s 14-year history. This prolonged period of low volatility reminds us of a similar trend observed in 2016. Edwards suggests that such patterns often signal an imminent significant price movement. However, it is important to note that while technical indicators point towards a bearish breakdown from the $30,000 mark, there is a glimmer of hope for bullish investors due to the absence of downward momentum. This lack of collapse in price also raises questions about the possibility of a failed breakdown.
The Role of On-Chain Data
In addition to technical analysis, Edwards emphasizes the significance of on-chain data. Currently, Bitcoin’s on-chain data continues to contract, albeit at a decelerating rate. The upcoming decisions regarding the approval of several Bitcoin Exchange-Traded Funds (ETFs) could potentially disrupt the current low volatility phase. Edwards, however, cautions against preempting these decisions, as they often get delayed. The report stresses the importance of confirmation to mitigate risk.
An Evaluation of Technicals
Taking a deeper dive into the technical aspects, the report highlights two key observations. Firstly, since 2010, Bitcoin’s historic volatility has only been lower than its current state in 2016. This suggests that a significant price move might be on the horizon when volatility expansion occurs. Secondly, Bitcoin’s breakdown from the $30,000 mark has so far failed to follow through. A close back into the Wyckoff structure at $30,000 would signify a failed breakdown and could serve as a positive technical signal.
Capriole’s Bitcoin Macro Index is a comprehensive tool that combines over 40 Bitcoin on-chain, macro market, and equities metrics into a machine learning model. Currently, the Index scores at -0.36, indicating a contraction. While the short-term outlook remains neutral, the long-term perspective appears bullish. Interestingly, this strategy takes long-only positions in Bitcoin and holds cash during slowdowns and contractions. The report emphasizes that the Macro Index suggests decent long-term value for multi-year horizon investors.
A noteworthy addition to Capriole’s analysis toolkit is the “Bitcoin Production Cost” model. This model evaluates the cost of mining a Bitcoin based on global average electrical consumption. The current indication from this model is that Bitcoin is trading within a long-term value region. However, the report speculates that this might not hold true into 2024.
Capriole’s analysis suggests that Bitcoin’s low volatility phase could potentially be a precursor to a bullish breakout. By drawing parallels with the behavior observed in 2016, the report offers a glimpse of potential long-term value amidst the current bearish technicals. However, the report also emphasizes the need for a technical confirmation before taking action, highlighting the importance of prudent risk management. Only time will tell if history will repeat itself, especially in light of the ever-changing macro environment. As of now, Bitcoin’s price remains stagnant at $29,445, leaving the cryptocurrency community eagerly awaiting the next move.
Featured image from André François McKenzie / Unsplash, chart from TradingView.com