Charles Edwards, the founder of hedge fund Capriole Investments, presented an in-depth analysis of the Bitcoin market yesterday. His review offers a keen perspective on the aftermath of the historic ETF launches, the pivotal role of major players like Grayscale, and the interplay of market mechanics shaping Bitcoin’s trajectory.
Bitcoin Market Summary: ETF Launch
Edwards acknowledged the ETF launches as a defining moment, characterizing it as “ETF mania.” He highlights the hindsight realization that the ETF launch triggered a short-term “sell the news event.” Edwards elaborated, “Part of this can be attributed to the Greyscale outflow of more than $4 billion, about half of which was forced sale by the FTX bankruptcy estate and another few billion likely to cover Grayscale’s debt obligations.”
However, he projects a shift in the outflow rate from Grayscale, saying, “I expect the current outflow rate to drop to a more sustainable trickle (to another few billion) over the next few weeks.” Edwards also highlighted the end of Grayscale’s multi-year lock-up period, which allows long-term investors to finally close out their GBTC positions at market prices.
Regarding Blackrock and Fidelity ETFs, Edwards noted its importance, saying: “The brand names of these two behemoths in the traditional asset management space means every billion they bring in adds an order of magnitude more credibility to (and therefore flows into) Bitcoin and crypto. as a whole.”
BTC Technical Analysis
In his high time frame technical (HTF) analysis, Edwards observed a strong rejection at mid-range resistance during the ETF launch. He pointed out, “The closest HTF support at $35,000 will likely represent a great opportunity to long for the 2024 halving (if we’re lucky enough to get there).” Edwards also mentioned, “Alternatively, a strong close above $44K is likely to continue the trend towards highs ($60K).”
For a low timeframe technical (LTF), he analyzed the December/January consolidation and the $44K “fake” during the ETF launch. Edwards explained: “Fakeouts are often resolved in price moves to the other end of the range, as we’ve seen.” He added:
Therefore, the most interesting price point locally is $41K. A daily close above $41,000 is likely to represent a downtrend forging and a quick return to a high of $44,000 (+). If we only pull in $41,000 and start to pull back, that would be a major risk-off trigger for a potential move lower to $35,000 HTF support.
Fundamentals: The role of on-chain data
Edwards underlined the importance of fundamentals and on-chain data in understanding market dynamics. Introducing Capriole’s Bitcoin Macro Index, he said: “This Index combines over 50 of the most powerful Bitcoin on-chain, macro market and stock metrics into a single machine learning model. It is a pure fundamentals-only value investing approach to Bitcoin. Price is not an input.”
According to him, fundamentals entered a period of slowdown that was in line with the near top at the ETF launch. “That fundamental slowdown continues today with prices down -20% from the highs in January so far,” Edwards noted.
Chart Of The Week
The hedge fund manager also introduced the Advance-Decline (AD) line as a chart of the week. He explained: “The AD line is calculated as the cumulative sum over time of each day’s count of advances less declines.” Edwards emphasized its relevance, saying: “Today we are seeing the first such outbreak since 2016.”
He drew parallels between the AD Line’s breakout and Bitcoin’s historical performance, noting: “During these periods in 2013 and 2016, Bitcoin was also in an all-time pullback (like today) and had two of its biggest cyclical rallies began in history.”
The Event Of The Year
Finally, Edwards offered a nuanced outlook. He warned: “Bitcoin at $39-40K is not a screaming buy today.” However, he projected, “The event of the year probably awaits in the $32-35K region, which if we’re lucky enough to see, will likely be the last time we ever see it.”
Edwards concluded with a forward-looking perspective, saying, “In anticipation, we patiently await a momentum breakout of $41K (aggressive) and $44K (conservative) for the resumption of the meat of the primary 2024 trend. Up.”
At press time, BTC was trading at $40,003.
Featured image created with DALL·E, chart from TradingView.com
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