The Trinity Reveals Itself

In today's Morning Note we examine a setup on the BTC hourly chart that could mean we head a lot higher from current levels. We also dissect how this can become invalidated and where are the risks

The information contained here is for general information only. It should not be taken as constituting financial advice. Stormrake is not a financial adviser. You should consider seeking independent financial advice prior to making any personal investments.

Bitcoin triple bottom

On the hourly chart a rare triple bottom has formed at the $19,560 USD level. A triple bottom is a bullish chart pattern used in technical analysis that's characterised by three equal lows followed by a breakout above the resistance level. Now for this level to hold, we need to see a breakout to confirm the technical setup. The breakout level is 20.4k and if we get a daily close above this level then a strong retrace to the 25k resistance level has a high probability of occurring.
The downside risks are quite clear, if we fail to hold and close below 19560 then we can easily see a scenario where we revisit the local lows of 17.6k. This occurs when a strong support level is lost, buyer exhaustion kicks in and the order book gets quite thin on the bids.

Credit spreads contracting

The US 2yr treasury yield and US 10yr treasury yield are starting to normalise and have been contracting for the last week. At one stage there was a near 45 bps spread between the two and it was causing concern amongst investors, as this historically signalled a deep recession was coming. The rates remain inverted though and the risks are still present, however this shows that rates will most likely normalise around 4%. This is in line with the the Federal Reserve’s target rate. A normalised yield curve in the US and steady interest rates can be a signal for risk assets to stage their rally.

European energy crisis

We covered in greater detail the European energy crisis in our latest monthly review. Check it out HERE. We wanted to quickly mention that German power prices are starting to come down. They remain quite elevated from historic averages. It’s important to note that these prices affect the lives of millions of people and whilst they remain abnormally elevated, it’s unrealistic to anticipate a strong bid in risk assets to come back. This can setup a confluence of events though, where energy prices normalise in Europe through some form of resolution of the Ukraine war, interest rates normalise in the US and global inflation starts to cool, these factors combined can stage a strong rally in Bitcoin and other risk assets.

Bitcoin profitability

This indicator shows the number of days in Bitcoin's traded history where holding Bitcoin has been profitable relative to today's price.
This chart highlights the aggressive growth of Bitcoin's adoption curve over time, which is reflected in its price. Because supply is limited, as demand grows, price moves up. For investors, it also demonstrates the importance of understanding the market cycles of Bitcoin to avoid buying market cycle tops. The drawdowns from cycle tops can last a long time, around 2-3 years in previous cycles.
The likelihood that Bitcoin never grows again and by extension doesn’t set a new all time high is low. This chart shows us that buying whilst it’s deeply in the red can provide outsized returns for those patient enough to see it through.

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