Bitcoin
Bitcoin is holding support and poised to make another record run, according to the charts
Bitcoin has been pulling back in recent weeks following the announcement that creditors of collapsed exchange Mt Gox will receive approximately $9 billion in bitcoin, and fears that supply will hit the market. That pullback has materialized, and according to our Elliott Wave analysis of the bitcoin chart, support has likely formed in the $59,000-$49,000 zone. If successfully defended, this sets up a third attempt to break through the formidable $65,000-$73,000 resistance zone. In fact, we just added a 2% stake in the new iShares Bitcoin Trust (IBIT) to our Tactical Alpha Growth portfolio at Inside Edge Capital. We are bullish and expect to see the underlying break out of all-time highs and push towards the $105,000-$109,000 target zone in 2024. Leaving aside the micro headwind of potential bitcoin supply, we have a potential macro tailwind that could help accelerate the rally. Looking at the 3-chart overlay below, you will find Bitcoin, Gold, and US 10-year yields since 2020. If you look closely at the overlay, you will notice two things on the chart that I find very useful as an equity investor to help gauge the macro environment. The first is that Gold and Bitcoin (blue and orange) have a very close positive correlation. ‘Heavy gold’ and ‘digital gold’ trading together?! Isn’t that like cats and dogs living together? We believe it has more to do with market dynamics, as both are currently inversely correlated to US bond yields, which is the second useful observation. If you look closely at the chart, you will see that the black-traded US 10-year yield has a loose inverse correlation to Bitcoin and Gold. As inflation is expected to be with us for longer than most think and the Fed is unlikely to ease rates any time soon, recent market activity has shown us that this is negatively impacting Bitcoin and Gold. Persistent inflation and higher rates are also negatively impacting equity markets. Putting it all together, higher rates have a negative impact on all three; bitcoin, gold, and the stock market, which have all shown a positive relationship in recent months. Incredibly, if you are bullish on the stock market, you want both bitcoin and gold to rally, which should see lower interest rates in the US as the first Fed rate hike approaches. As far as bitcoin’s rally against gold from the 2022 lows, there is no competition. Gold is up +45% compared to bitcoin’s +280% rally. To further underline bitcoin’s outperformance, take a look at a weekly bitcoin/gold ratio chart since 2020. Using the same school of market analysis, we see that bitcoin/gold has pulled back to support (gold outperformed bitcoin on the Mt Gox events), but is possibly finding support ready to reassert its dominance over gold. In short, as a very bullish stock market investor, I would like to see bitcoin and gold rally along with lower U.S. yields. But ideally, we see gains in bitcoin (and our new IBIT position) far outpacing our holdings of our gold mining stocks. – Todd Gordon, Founder of Inside Edge Capital, LLC DISCLOSURES: (Gordon owns IBIT personally and through his wealth management firm Inside Edge Capital. Charts shown are MotiveWave) All opinions expressed by CNBC Pro contributors are their own and do not reflect the views of CNBC, NBC UNIVERSAL, its parent company or affiliates, and may have previously been disseminated by them on television, radio, internet or otherwise. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISION, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for full disclaimer.