Bitcoin has recently seen a strong rally, rising from $34,000 to a provisional high of $38,000.
In a detailed market update, Charles Edwards, founder of Capriole Investment, provided an in-depth analysis of the current position of the Bitcoin market, highlighting a fundamental shift towards an “expansion” phase in the Bitcoin Macro Index. This transition is particularly notable as it parallels conditions seen prior to historic price increases in Bitcoin valuation.
After a brief period of resistance, the price corrected to around $36,500. Edwards highlights this move as a critical technical victory, with Bitcoin surpassing and staying above the major resistance benchmarks of $35,000 on both the weekly and monthly periods.
This consolidation above key resistance levels sets a bullish backdrop in long-term technical analysis, positioning Bitcoin in a strong technical stance according to traditional market indicators. The recent breakout into the 2021 range offers the best high-term technical setup we have seen in years. As long as $35K is maintained weekly and monthly in November, the next significant resistance is the high range ($58-65K).
Bitcoin Macro Index Enters Expansion
The crux of Edwards’ update is the change to the Bitcoin Macro Index, a complex model that synthesizes more than 40 metrics spanning Bitcoin on-chain data, macro market indicators, and stock market influences. The index does not take price as an input, thus providing a “pure fundamentals” perspective.
The current expansion is the first since November 2020 and only the third since the index’s creation; The two previous occasions caused significant price rallies in the following periods. Edwards clarifies this by stating that “The transition from recovery to expansion is simply the optimal time to assign Bitcoin a risk-reward opportunity for this model.”
Bitcoin price increased by a whopping 400% during the last bull run from early November 2020 to November 2021, after the Macro Index entered the expansion phase. The first historical signal was provided by the Macro Index on November 9, 2016, which was followed by a massive run of almost 2,600% until Bitcoin reached its all-time high of $20,000 in February 2018.
Derivatives and Short-Term Technical Market Analysis
In the short term, the technical outlook presents a mixed picture, according to Edwards. Derivatives markets are indicating a state of overheating, and low-term analysis suggests a pullback could be imminent. Edwards introduces the ‘Bitcoin Heater’ metric, recently launched on Capriole Charts, which aggregates various derivatives market data and quantifies the level of market risk based on open interest and the heating level of perpetual, futures and options markets.
Most of the time, when the Bitcoin heater is above 0.8, the market corrects or consolidates. “But there are big exceptions to the rule: like the main bull market rally from November 2020 to the first quarter of 2021. […] We should expect this metric to be high more often in 2024 (just like in the fourth quarter 2020-2021),” Edwards said.
The analyst concluded that the overall trend of Bitcoin remains positive, and the main data indicates a strong bullish scenario. However, he also warned of possible short-term risks in the derivatives and short-term technical market. These, he says, are common in the development of a bull market and could offer valuable opportunities if declines occur.
By Leonardo Perez