In a detailed market update, Charles Edwards, founder of Capriole Investment, provided in-depth analysis analysis of Bitcoin’s current market position, highlighting a crucial shift towards an “expansion” phase in the Bitcoin macro index. This transition is particularly notable because it matches conditions seen before historic surges in Bitcoin’s valuation.
Bitcoin has recently seen a sharp rise from $34,000 to an intermediate high of $38,000. After a brief period of resistance, the price corrected to around $36,500. Edwards highlights this move as a crucial technical victory, with Bitcoin overcoming and holding above the key resistance levels of $35,000 on the weekly and monthly time frames.
This consolidation above key resistance levels creates a bullish backdrop in long-term technical analysis, positioning Bitcoin in a strong technical position according to traditional market indicators. “The recent breakthrough in the 2021 lineup offers the best long-term technical setup we’ve seen in years. Provided $35,000 is sustained on a weekly and monthly basis in November, the next significant resistance lies at the top of the range ($58-65,000).
Bitcoin macro index enters expansion
The crux of Edwards’ update is the change in the Bitcoin Macro Index, a complex model synthesizing more than 40 metrics encompassing Bitcoin’s on-chain data, macro market indicators and stock market influences. The index does not take price into account, thus providing a “purely fundamental” perspective.
The current expansion is the first since November 2020, and only the third since the index’s inception, with the previous two occasions leading to substantial price increases in subsequent periods. Edwards explains this with a direct quote: “The transition from recovery to expansion is simply the optimal time to allocate Bitcoin a risk-reward opportunity for this model. »
A review of the Bitcoin chart reveals that the price of Bitcoin increased by 400% during the last bull run from early November 2020 to November 2021, after the macro index entered the expansion phase. The first historic signal was provided by the Macro index on November 9, 2016, followed by a massive surge of almost 2,600% until Bitcoin reached its all-time high of $20,000 in February 2018.
Analysis of the short-term technicals and derivatives market
In the near term, the technical outlook presents a mixed picture, according to Edwards. Derivatives markets are indicating an overheated state, with short-term analysis suggesting a retracement could be imminent. Edwards introduces the recently launched “Bitcoin Heater” metric on Capriole Charts, which aggregates various derivatives market data and quantifies the level of market risk based on the open interest and heating level of perpetual, futures markets and options.
The chart below shows that most of the time when the Bitcoin Heater is above 0.8, the market is correcting or consolidating. “But there are big exceptions to the rule: like the first bull market rally from November 2020 to the first quarter of 2021. […] We should expect this metric to be elevated more frequently in 2024 (much like Q4 2020-2021),” Edwards said.
The analyst concluded that the overall Bitcoin trend remains positive, with major data points pointing to a strong bullish scenario. However, he also warned of potential short-term risks in the short-term technical and derivatives market. According to him, these are common in the development of a bull run and could provide valuable opportunities on a decline.
At press time, BTC was trading at $35,626.
Featured image from Shutterstock, chart from TradingView.com