Why a Bitcoin Breakout Is Imminent: Key Reasons to Boost Your Confidence

👇1-14) We entered October with a bullish outlook, but, as we had cautioned for the past three months, the first week of the month often brings a market correction. True to form, Bitcoin experienced a sell-off earlier this month.

👇2-14) On October 7, we released an update titled "Doubling Down on Bitcoin’s October Rally as MicroStrategy Shares Could Break Out." With central banks like the Swiss National Bank and Norway’s Sovereign Wealth Fund investing hundreds of millions of dollars in MicroStrategy shares as a proxy for Bitcoin, we anticipated a potential breakout for MicroStrategy. This, in turn, could trigger a "tail-wagging-the-dog" effect, driving Bitcoin’s momentum.

MicroStrategy (RHS) might have the power to pull Bitcoin (LHS) higher.

👇3-14) On October 7, MicroStrategy shares were trading at just $177, but they have since climbed to $236, marking a 33% increase. This rally is significantly influencing Bitcoin’s upward momentum. Yesterday's report emphasized Bitcoin’s retest of the crucial $66,500 level—a critical technical marker as it served as the September high and a support level.

Bitcoin re-tested the September high (at $65,888)

👇4-14) Bitcoin retested its breakout above the downtrend line (see yesterday’s report), which had been in place since March and was tested seven times. With this successful technical test, Bitcoin could now be poised to break through the $70,000 mark in the coming days as another pivotal resistance level comes into play.

👇5-14) Bitcoin has once again climbed above the peak of the 2021 bull market, a critical level where we advised locking in gains back in March 2024. At that time, Bitcoin began trading below this level after failing to sustain its new all-time highs for the cycle. On February 1, after forecasting a rally to $70,000, we recommended that subscribers take profits if Bitcoin dropped below $68,330.

👇6-14) Although the months that followed were marked by extreme volatility, Bitcoin’s recent move above this level, combined with its successful tests of critical technical support and resistance points and the "MicroStrategy tail wagging the Bitcoin dog" effect, leads us to expect Bitcoin will break through the $70,000 threshold soon.

👇7-14) Another critical factor is the heavy short interest in MicroStrategy shares. Short sellers, currently short $6.7 billion worth of the stock, may eventually be forced to cover (buy back shares). Our recent report noted this massive short position, and as MicroStrategy shares surged by 10% last night, short sellers lost $670 million, bringing their total short position to $7.3 billion. Part of this rally is likely driven by short-covering, and if Bitcoin breaks above $70,000, it could push MicroStrategy shares even higher, further squeezing short sellers.

Bitcoin trading signal (white dots) indicates a potential rally.

👇8-14) Bitcoin is also trading back to the level where one of our Bitcoin trading signals has flagged a potential rally continuation based on past pattern analysis. As Bitcoin reached a new medium-term high, the rally continued, with prices rallying +9.1% over the next two weeks, and 8 out of the last 10 signals made money. This brings this trade right up into the U.S. Presidential election period, where we firmly believe that Trump will win, which should push up all risk assets.

Previous Bitcoin trading signals from this model

👇9-14) The September high of $65,888 could serve as an adequate stop-loss level for leveraged long positions, as the current market conditions may justify increasing exposure. Options traders are also becoming more bullish, which aligns with our expectations. The 1-month 25-delta skew, which measures the difference in implied volatility between puts and calls, has declined to the lower end of the 2024 range, between -8% and -10%.

👇10-14) For context, the 2024 range has fluctuated between +6% (indicating a preference for puts) and -10% (indicating a preference for calls). Being near the lower end of this range suggests we are approaching one of the most bullish points. As we highlighted last week, Bitcoin options open interest has surged to the upper 2024 range of $22.5 billion, signaling that smart money and leveraged traders are positioning for a breakout.

👇11-14) For the first time since April 2024, on-chain data shows an increase in the total supply held by short-term holders. Historically, when this metric rises, it confirms positive momentum based on on-chain activity. As long as it continues to grow, it suggests a bullish period for Bitcoin. This metric had declined from April through September but began trending upward again in October, further supporting the bullish outlook.

👇12-14) On the other hand, the total supply held by long-term holders has started to decline—a trend often seen during sharp Bitcoin rallies, such as those in October 2020 and January 2024. However, this pattern typically becomes apparent only in hindsight.

👇13-14) In contrast, while the number of addresses depositing Bitcoin to exchanges spiked in March 2024, this metric has now reached the lower bound of its 2024 range. This indicates a reluctance to move BTC to exchanges where it is typically sold. As we highlighted yesterday, most sellers over the past six months may have already exited their positions, further confirming the lack of selling pressure.

👇14-14) Unsurprisingly, some players are forced to cover their $6.7 billion in MicroStrategy shorts, pushing the stock even higher. This dynamic could significantly impact Bitcoin, potentially driving prices above $70,000. But there is more: the technical setup appears strong, and the options market is signaling bullish sentiment ahead of the U.S. Presidential election, with on-chain data reinforcing this optimistic outlook. A Bitcoin breakout could be imminent.