Bitcoin Ready To Soar on Strong Macro Data: A Breakout Looms!

Many have been asking, so for the next 30 days, for new annual subscribers of our substack updates, we will send a signed copy of the book ‘Crypto Titans: How trillions were made and billions lost in the cryptocurrency markets” to their postal address (no extra shipping and no handling fees).

Summary: Since November 2022, the decline in inflation has been a massive tailwind for macro-liquidity and a key reason why Bitcoin prices rallied more than +113% this year. Last week, there were three ‘macro bullish’ data points. Next week’s U.S. CPI data could set off another rally in Bitcoin if inflation declines again. A break above $36,000 could cause Bitcoin to rally to our next technical resistance level at $40,000 and potentially rise to $45,000 by the end of 2023.

Analysis:

For the last two weeks, Bitcoin has traded in a tight range. This is about to change.

Here is why:

Two months ago, U.S. inflation (CPI) rose from 3.2% to 3.7% YoY. This (unexpected) increase put a break on the relentless decline in inflation. This might have been why Bitcoin traded in a tight, unexcitingly ‘range’ around $25,000 to $26,000 for two months. As our readers are aware, since November 2022, the decline in inflation has been a massive tailwind for macro-liquidity and a key reason why Bitcoin prices rallied more than +113% this year.

A month ago, U.S. inflation remained pinned at 3.7%. As traders became comfortable with this level and saw it only as a temporary increase, Bitcoin prices rose from $27,000 to $34,000 a week after the released inflation data. Other factors might have been at play, too, such as the short-gamma of Bitcoin option market makers or the positive statistics about buying Bitcoin on ‘bad luck’ Friday the 13th. But as we have shown on numerous occasions, a decline in the inflation data had set off a rally in Bitcoin prices earlier this year.

Crude oil prices rallied by +30% from the summer low, which could have impacted inflation expectations. But since late September, oil prices have declined by -20%. Traders will likely expect inflation to decline again, which supports risk assets from a macro-liquidity point of view.

In anticipation of this data release, we can see Bitcoin attempting to break out from its recent $34,000 to $35,000 trading range. A break above $36,000 could cause Bitcoin to rally to our next technical resistance level at $40,000 and rise to $45,000 by the end of 2023.

During the last month, Bitcoin prices have rallied by +25%, with 70% of those returns (+17%) occurring during U.S. trading hours. There appears to be consistent and gradual buying during U.S. hours – even as Bitcoin has declined lately during Asian trading hours. A reason could be that Asian traders are buying Altcoins – instead of Bitcoin.

However, while Ethereum is up +16%, we also see that 70% of those returns (+11%) have occurred during U.S. trading hours. Solana is more balanced across all three regions – which is a surprise as flows from Europe are relatively insignificant compared to flows during U.S. and Asian trading hours. The Solana Breakout conference was located in Europe (Amsterdam) and would explain those evenly distributed flows.

Last week, there were three ‘macro bullish’ data points: 1) the U.S. treasury department slowing the pace of issuing longer-dated debt, which indicates that bond yields should decline, 2) Chair Powell appeared dovish during the post-FOMC meeting press conference, which signals that the Fed will unlikely hike again during this interest rate cycle, and 3) U.S. employment data disappointed which reinforces the first two points.

The next crucial macro data point will be the U.S. CPI (inflation) data next Tuesday, November 14th. With a steady buyer during U.S. trading hours and an attempt for Bitcoin to break out, we could see prices rallying into month (and year) end.