Yesterday, Bitcoin market dynamics underwent a detailed examination by Charles Edwards, the founder of hedge fund Capriole Investments. Through his comprehensive analysis, Edwards offered an in-depth perspective on the consequences of the recent groundbreaking ETF launches. He emphasized the crucial roles played by major entities such as Grayscale and clarified the market mechanics that shape Bitcoin’s trajectory.
Edwards recognized the ETF launches as a watershed moment, labeling it as the onset of “ETF Mania.” He underscored the retrospective realization that the ETF launch triggered a short-term “sell the news event.” Edwards clarified, “A portion of this can be attributed to the Grayscale outflows of over $4B, approximately half of which was forced selling by the FTX bankruptcy estate and another couple of billion likely to cover Grayscale’s debt obligations.”
Nonetheless, he anticipates a change in the outflow trend from Grayscale, stating, “I expect the current rate of outflow will decrease to a more sustainable trickle over the next few weeks (after another few billion out).” Edwards also brought attention to the conclusion of Grayscale’s multi-year lock-up period, allowing long-term investors to finally liquidate their GBTC positions at prevailing market prices.
Regarding the ETFs from Blackrock and Fidelity, Edwards emphasized their significance, noting, “The reputation of these two giants in the traditional asset management space means that every billion they attract adds a significantly higher level of credibility (and consequently flows) into Bitcoin and the broader crypto sphere.”
In his analysis of high timeframe technicals (HTF), Edwards observed a robust rejection at mid-range resistance during the ETF launch. He pointed out, “The nearest HTF support at $35K would likely present a lucrative opportunity to enter long positions for the 2024 Halving year (if we are fortunate enough to reach that point).” Edwards also remarked, “Alternatively, a decisive close above $44K will probably sustain the trend towards the upper range ($60K).”
Bitcoin’s Short-Term Outlook: Unpacking Technicals And Fundamentals
Examining low timeframe technicals (LTF), he scrutinized the consolidation in December/January and the $44K “fakeout” during the ETF launch. Edwards explained, “Fakeouts often result in price movements to the opposite side of the range, as we observed.”He added
Therefore, the most interesting price point locally is $41K. A daily close above $41K would likely represent a downtrend fakeout and a swift return to range high at $44K (+). If we simply wick into $41K and start trending back down, that would be a great risk-off trigger for a potential move lower toward $35K HTF support.
Edwards emphasized the significance of fundamentals and on-chain data in comprehending market dynamics. He introduced Capriole’s Bitcoin Macro Index, explaining, “This Index amalgamates over 50 influential Bitcoin on-chain, macro market, and equities metrics, amalgamated into a singular machine learning model. It represents a purely fundamentals-oriented approach to Bitcoin, where price serves as an excluded input.”
According to him, fundamentals have entered a phase of deceleration, aligning with the near summit at the ETF launch. Edwards observed, “That fundamental slowdown persists today, with the price experiencing a 20% decline from the January highs.”
The hedge fund manager also featured the Advance-Decline (AD) Line as the chart of the week. He clarified, “The AD Line is computed as the cumulative sum over time of each day’s count of advances less declines.” Edwards underscored its relevance, stating, “Presently, we are witnessing the initial breakout since 2016.”
He drew parallels between the AD Line’s breakout and Bitcoin’s historical performance, remarking, “During analogous periods in 2013 and 2016, Bitcoin was also undergoing a drawdown from all-time highs (similar to today) and initiated two of its most substantial cyclical rallies in history.”
Concluding, Edwards provided a nuanced perspective. He cautioned, “Bitcoin at $39-40K is not an immediate buy signal.” Nevertheless, he anticipated, “The potential opportunity of the year likely looms in the $32-35K range, which, if realized, might be the final occurrence of its kind.”
Edwards concluded with a forward-looking stance, expressing, “Pending that, we patiently await a momentum breakout at $41K (aggressive) and $44K (conservative) for the resumption of the primary 2024 trend. Up.”