Yawnfest: A Healthy Price Consolidation Provides Opportunity to Build a Position

Happy Canada Day Bitcoiners! With half the year in the rearview mirror, and price action as sleepy as America’s president, we thought it would be a good opportunity to take stock of the year to date and look ahead to the next six months.

Source: Bloomberg 2024

As frequent readers will know, the monthly candlestick chart is our preferred way to check in on Bitcoin price action. As you can see, June printed the third sideways month since February’s magnificent run which took us back to 2021 all-time highs. Consolidation at these levels was to be expected from a technical analysis perspective, and from a Bitcoin Epoch perspective. The first few months after a halving, which we recently had in April, are typically characterized by go nowhere price movements, a phenomenon possibly best explained by a pull-forward in demand in the three months leading up to the halving from informed investors seeking to establish positions prior to the supply-shock. The non-linearity of the reaction in price confounds newcomers who expect the price to suddenly shoot up with the halving of new supply issuance. But naturally, as with all markets, prices move on anticipation of future events, and while there isn’t a “sell the news” reaction either, the sideways chop can also be a test of diamond hands as boredom runs counter to the excitement hoped for by many. Have patience! As we have advised clients, Bitcoin tends to start to run six to eighteen months post-halving and is to be bought on weakness in the doldrums of the early weeks of each new Epoch. Seasoned Hodlers know this and are hanging out at the USD $60,000 floor happy to collect cheap sats from those without conviction. We continue to believe these price levels represent a wonderful opportunity to establish or rebalance into a strategic position with asymmetric opportunity ahead.

Source: Investopedia 2024

“A cup and handle is considered a bullish signal extending an uptrend, and it is used to spot opportunities to go long.” – Investopedia

For the more traditionally minded market technicians in our audience, perhaps those of you who – quite reasonably – continue to be skeptical of Bitcoin specific arguments like the halving-cycle, we would also point out that recent price action is a textbook bullish continuation pattern. The cup-with-handle is one of the most widely recognized patterns in technical analysis perhaps because it is so immediately intuitive: prices establish a new high (2021), sell off on buyer exhaustion (2022), consolidate when value investors outnumber capitulating short-term traders (2023), rally back to prior highs on renewed optimism (2024, Q1), and then sell off as those who had bought those highs look to get out with their money back (2024, Q2). After the handle, the cohort who remains is those who saw value at lower prices, and those who have stayed committed throughout the intervening bear. Those investors are not selling at these levels, and yet new people are attracted by the year-to-date run-up in prices. Once the handle breaks to the upside, prices must move higher to convince the long-term holders to part with some of their coins. None of this interpretation is ours: there is a century of technical analysis literature, and countless examples across all asset classes, to support this view. Either way, we will find out in the months ahead.

Source: Coinglass 2024

Finally, on price analysis, as you can see from the table below June was typically printing a small down month which happens, according to history, half the time. July, on the other hand, is green 7/11 of the time, so a positive month ahead would be in-line with history though not certain. We don’t put much stock in this sort of thing, but it is useful to see whether we have a total aberration or not. Perhaps more interesting is that we’ve had only two down months so far this year, which is beaten only by last year, and matched by 2013: in both cases the year ended very well, so we should be happy with the year to date and optimistic about the back half.

Ether ETFs: A New Catalyst of Crypto Demand?

Outside of Bitcoin, the most exciting recent news is the likelihood of spot Ether ETFs being approved in the US this summer. Recent filings from US issuers are pointing to Ether ETFs coming to market sometime in July or August. Ether ETFs would bring renewed news to the crypto sector and likely take on a similar role as US Bitcoin ETFs in acting as the marginal buyer for the foreseeable future. We expect Ether ETFs to grow to roughly 20% of the size of their Bitcoin cousins which will still be among the largest growth opportunities in the ETF market anywhere in the world.

For many investors, having access to both Bitcoin and Ether is a requirement for their allocation to the asset class because they want to diversify themselves away from betting on a single cryptocurrency. This is why we launched the Evolve Cryptocurrencies ETF (TSX: ETC). Our ETF holds Bitcoin and Ether in their relative free-float market cap weights. This single-ticket solution is Canada’s largest multi-crypto ETF and increasingly the fund of choice for investors looking for a set-it-and-forget-it approach to the sector. We encourage readers to learn more about this fund at www.evolveetfs.com/etc and reach out if you have any questions.

US Bitcoin ETFs Continue to Dominate

Along with everyone else, we have written a lot about US spot Bitcoin ETFs over the past year. In flows have set records by all measures. Rather than re-hash the stats again this month, we will leave you with this tweet from Bloomberg’s Eric Balchunas:

ETFs continue to grow as more and more advisors and institutions allocate to the asset classes. This is why we built The Bitcoin ETF (TSX: EBIT) back in 2021. Having a strategic allocation to Bitcoin is moving into the mainstream. It is still early and there is still plenty of time to allocate ahead of large institutions who require more liquidity which can only be facilitated by higher prices. If you have any questions as you consider your allocation, please don’t hesitate to get in touch. Best wishes for an enjoyable and relaxing summer.

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