Bitcoin Must Decide Soon, Bull or Bear?

Bitcoin has been in a descending wedge pattern since November 9th.  Frustrating as it is, there are reasons it has not broken out yet.  Thus, patience is required here!  Below is a chart showing how the Wykoff Distribution pattern may be playing out.  It may not look exactly like this in February.  We like the Wykoff Distribution pattern because it fits where Bitcoin has been.  We know the spot ETF’s were not approved by the SEC so far.  Yet, future’s ETF’s were approved.  So we have institutional manipulation in the open interest market keeping the price suppressed.  We know this.  It is obvious now!  At the end of a Wykoff Distribution pattern there is Phase E, which is parabolic.  Of course, we don’t know when this phase will ensue, it could still take a while.  Here is that chart:

Historically, Bitcoin is also looking like a 1993 fractal from the Dow Jones Industrial Average, also in a Wykoff Distribution pattern at the time:

Then, you can look at bottoming patterns like in this next chart.  This shows percent of transfer volume in profit and historically, when Bitcoin hits 40% transfer volume in profit.  That is a bottom signal.  A reversal ensues and last year, it gained 280% upon this reversal:

So we can see a bottom has formed, yet again, during this bull run.  Now look at the realized cap HODL wave chart.  This chart goes back to 2011, every bull run 4 small peaks spurred by demand spikes.  These “HODL waves” are captured in this chart below.  So far, in this cycle we have completed the 2nd wave and have bottomed, expecting the 3rd wave soon:

These charts give us a story beyond, what is the price today?  That doesn’t tell us anything.  We have to look beyond that to really understand.  So, we already know from last weeks blogs that open interest (leveraged longs and shorts) are very high.  This sets up a short squeeze. Had the longs been liquidated price action would have been more violent downward, than it is now.  So now the question is, will there be a short squeeze?  If longs did not liquidate in mass, perhaps it is the shorts that need to be liquidated.  If that happens, expect new ATH prices above $69K.  Obviously, the jury is still out on that, at this time.  So, patience.  As for any potential for Bitcoin to drop below $40K.  Sure, it is possible.  Buy the dip if Bitcoin gets below $40K.  It won’t matter in 5 years if you bought at $35K or $39K.  You don’t want to miss the opportunity of buying a sub $40K Bitcoin!  
 

Roy Niederhoffer of Niederhoffer Capital said in a Kitco interview last week that Bitcoin’s coorelation to S&P500 is 0.44.  That is not a very high coorelation.  Then he went on to say, that if the Fed did actually follow through on the 4 rate hikes, that stocks would deflate.  Thus, the deflationary crash we have talked about a lot over past blogs.  He doubts the Fed can follow through, which we agree with.  Mr. Niederhoffer (whose hedge fund turned a 60% ROI during the 2008 crash), also stated this coorelation between BTC and S&P500 would evaporate in a crash scenario.  Why?  Because where else can money be invested in a flight to safety scenario?  What better hedge exists against inflation?  Bitcoin has outperformed every other asset since 2009.  Only in 2014 and 2018 was Bitcoin not the top performing asset.  It has left Gold in the dust from a returns stand point.  He also predicted at least $100K Bitcoin by the end of 2022.  Of course, we are thinking it will get higher than that ($135K to $190K), but this has been a different bull run, much more extended than any of us thought.  We will keep an open mind and we ask our readers to as well.  Stay patient, and keep buying dips if Bitcoin does go sub $40K.  
 

Keep this in mind, the red line is real estate % of US household assets.  The blue line is equities % of US household assets:

Equities are now a much higher % of net worth in US households than in any past year going back to 1950.  A flight to safety will have to be a hedge investment.  Again, we don’t think the Fed will start a deflationary crash.  They are more likely to revert to QE, printing.  Bitcoin is sitting in a great position at this time, even though it may not look like it.  
 

One more thing.  When Bitcoin’s sharpe ratio drops down to the level of equities, that is another bottom signal.  This chart also shows that Bitcoin’s sharpe ratio is close to US stocks.  See the chart below:

It could still take a few weeks or longer.  If we had to guess, February sometime, but we don’t know when.  Just that Bitcoin will likely turn up.  It will struggle around $50K to $51K with resistance, and again at $56K and $69K.  It is going to take much longer, but stay patient.  We are not financial advisers, but this patient HODLing of Bitcoin wins as a strategy, in bull markets.  Look at it long term.  Even if Bitcoin does decide bear market and drops to $37K or so, it is still a dip to buy. We think the signs are pointing to a bullish reversal, time will tell!
 

Neutral ATM is here to get everyone off of zero Bitcoin. 

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