Why Bitcoin Could Be Headed Lower in the Near-term…

May 9, 2024

With Bitcoin coming off an all-time high in price as the macro backdrop starts to hint at a possible risk-off trade, Bitcoin is looking potentially vulnerable in the near-term. While the structural bull-case remains strong, that does not preclude the prospect of volatility and the potential for drawdowns.

As a practical matter, our own models went to approximately 75% cash at the beginning of May.

So what are we seeing that suggests the potential for more downside on the horizon?

Macro/Technicals

So far this year, if we compare “Growth” (as proxied by the S&P Pure Growth ETF: RPG) vs. “Value” (RPV), Growth is up over +11% YTD (as of writing) while Value is up just over +3%. Over the last 3 months, however Value is up +4.05% while Growth is only up +1.31%. Whether or not this turns into a full rotation remains to be seen, but one thing is becoming more clear: For Bitcoin, the proverbial “poster-child” of Risk-assets, a continued rotation out of Growth would almost certainly weigh on the price of Bitcoin absent other forces.

From a technical perspective, Bitcoin is more sensitive than other assets. The very nature of the asset class makes it so. It’s naive to say there’s no fundamental value to bitcoin, one only needs to look at the international wire/SWIFT market to see the value. We believe that the fundamental value-proposition remains strong, and therefore provides a supportive backdrop to the long-term bull case. In the near-term, however, it’s all about the technicals which are currently bearish.

Specifically, if we look at a weekly chart of spot-prices (sourced from Coinbase) over the 200 day moving average, we see that after setting an all time high in price (at nearly $74k), bitcoin has drifted downwards with the next major support level around $52k:

Source: TradingView.com, IDX Insights; as of May 9th,2024

This is not to suggest that there’s anything that requires Bitcoin to re-test its 200day moving average…there does, however, appear to be an “airgap” between current prices and that $52k level of support.

Structural Selling Pressure

According to a recent article on coindesk, the crypto-ecosystem is facing roughly $2 billion worth of unlocking tokens in the next 10 weeks, much of which is held by Venture Capital firms that may be under pressure to lock in gains. Additionally, over $11 billion (USD) worth of bitcoin is expected to be distributed to creditors of Gemini and Mt. Gox (according to a K33 Research report). Structural sellers like this, if they do indeed decide to sell, will almost certainly weigh on the price of bitcoin.

Regulatory Pressures

Last, regulatory scrutiny in the United States has come back in full-force and is contributing to the bearish sentiment surrounding Bitcoin. After the long-awaited SEC approval of spot-bitcoin ETFs, many investors (us included) thought this might mark a turn in the regulatory sentiment towards crypto. In recent weeks however, the SEC has sent a wells notice to Robinhood, as well as Uniswap labs and the Ethereum foundation. This comes on top of ongoing lawsuits with Coinbase and Binance (who’s founder “CZ” was just sentenced to 4 months in US prison for money laundering violations).

Final Thoughts

In conclusion, short of a dovish pivot by the Fed (which is still in the real of possibility), multiple factors are converging to suggest that Bitcoin may face downward pressure in the near-term. Technical analysis indicates potential weakness in Bitcoin’s bullish momentum, while looming token unlocks and regulatory concerns add to the bearish sentiment. As is always the case in crypto-world….Buyer Beware! Contact the IDX investor relations team (email: info@idxadvisors.com) if you’re interested in leaning more about our various Risk-Managed’ approaches to Bitcoin and other Digital Assets.