Bitcoin, the world’s leading cryptocurrency, has been experiencing a period of unusually low volatility. With the price hovering around $29,000, experts are closely monitoring the market for signs of a potential breakout. This prolonged period of stability is reminiscent of a similar phase in 2016, indicating that a significant price movement may be on the horizon.
According to Charles Edwards, the founder of Capriole, a close above $30,000 on the daily timeframe is necessary to confirm a failed breakdown and provide a more concrete bullish sentiment. While there have been suggestions of a bearish breakdown, the absence of downward momentum offers hope for bullish investors. If a collapse was imminent, it would likely have occurred by now.
Despite the low volatility, Bitcoin’s on-chain data continues to contract, albeit at a decelerating rate. The upcoming decisions regarding Bitcoin ETF approvals could potentially disrupt this phase of stability. While an approval could lead to a break from the current low volatility range, it is important not to preempt these decisions as they are often subject to delays. Confirmations are key in mitigating risk.
Capriole’s analysis highlights two key observations. Firstly, Bitcoin’s historic volatility has been lower than today’s level only in 2016, indicating that a significant price move may be on the horizon when volatility expands. Secondly, the $30,000 breakdown has so far failed to follow through. A close back into the Wyckoff structure at $30,000 would signify a failed breakdown, which would be a positive technical signal.
Capriole utilizes the Bitcoin Macro Index, a comprehensive tool that combines over 40 Bitcoin on-chain, macro market, and equities metrics into a machine learning model. Currently scoring at -0.36, indicating “Contraction,” the index suggests a neutral short-term outlook but a bullish long-term perspective. This strategy adopts long-only positions in Bitcoin and holds cash during slowdowns and contractions.
Capriole has also introduced the Bitcoin Production Cost model to their analysis toolkit. This model evaluates the cost of mining a Bitcoin based on global average electrical consumption. Currently, the model suggests that Bitcoin is trading within a long-term value region. However, the report speculates that this may not hold true beyond 2024.
Capriole’s analysis presents the possibility of long-term value amidst the current bearish technical indicators. Drawing parallels with 2016, the report suggests that Bitcoin’s low volatility phase could be a precursor to a bullish breakout. However, it is important to exercise prudent risk management and await a technical confirmation before making any investment decisions.
With Bitcoin’s cyclical nature of expansion and contraction cycles, only time will reveal if history will indeed repeat itself, especially considering the different macro environment in which Bitcoin operates today. As of now, the BTC price remains stagnant at $29,445. The future of Bitcoin’s volatility and price movement remains uncertain, but market participants continue to monitor the cryptocurrency closely.
[Image Credit: André François McKenzie / Unsplash] [Chart Credit: TradingView.com]
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