The Weekly Close

After a volatility filled week, Bitcoin closed it’s weekly candle near $95k after a deviation and wick above our $100k resistance level. The wick to the upside represents weakness and shows that sellers are in control above $100k for now. The good news is that so far this has been a standard bull market correction for Bitcoin that was overdue after the incredible post-election rally we experienced to close out 2024.

Temperature Check

It’s clear that last week’s move spooked a lot of investors that were clamoring for Bitcoin to keep rallying higher thanks to all our bullish narratives. For the first time since the election I have started noticing that uncertainty, fear, and doubt are starting to seep into the minds of investors. This is healthy and expected during a bull market reset and is the exact reason why we approach the market with probabilities and not certainties. I’d love to see a dip into the “Fear” region to conclude this correction and sentiment reset, but that may not happen.

Global Liquidity

The Global Liquidity Index continues to be my preferred leading indicator for Bitcoin’s medium-term trend. I noticed that many investors who used the rising global liquidity as a reason for Bitcoin to go higher decided to ignore it as a warning sign that Bitcoin would likely correct. This is why ignoring narratives and sticking to our plan and the data is so valuable. Most investors only look at the data that aligns with their desired outcome instead of using it to gauge the most likely outcome. I’m waiting for the reversal in this global liquidity index downtrend before getting too excited about Bitcoin’s next rally.

Inflation

After a hot labor market print last week, all eyes are on this week’s inflation data release. We know the FED has been unable to cut interest rates because of the stubborn inflation we have seen over the past few months. Inflation is still well above the FED’s target and with the economy and labor market remaining strong the FED and markets have been forecasting less and less rate cuts over the next 12 months. This resulted in the DXY strengthening and the global liquidity downtrend we have experienced. I will be watching this week’s inflation data closely as it will likely be our next major catalyst.

This Correction

The question on everyone’s mind right now is “how low will Bitcoin go during this correction?”. When I was new to this market I would look on Twitter and YouTube for answers and would get dozens of explanations and possibilities of what the outcome would be. Over time I discovered that it was much easier assigning probabilities to various support regions and planning accordingly. I know many are convinced we won’t go any lower and that the bottom must be in and there are others that are convinced we are going way lower and that the cycle top must be in. Both of these groups will likely be incorrect and the answer is likely something in the middle. We’ll continue monitoring the price action and data to update these probabilities as time goes on.

My Portfolio

I made no changes to my portfolio this week since Bitcoin is right in the center of my 30-40% cash allocation goal for Q1. I got lucky with the timing of my profit-taking last week since the falling global liquidity forced me to sell a portion of my holdings around $102k as discussed in my previous weekly report. Prices are now too high for me to consider buying, but too low for me to be tempted with profit-taking. Most investors feel like a deer in headlights during these volatile corrections because they always feel underexposed during rallies and then feel overexposed during corrections. That’s why having a plan and taking profits on the way up is so valuable for emotion management.

P.S. If you made it to the end of this report thank you for reading and I hope you got some value from it. We likely have a volatile week ahead of us thanks to the significance of the incoming inflation data now that labor market strength has been solidified in the minds of the FED and the market for now. Make sure to have a plan for the different outcomes I laid out and try your best to stick to that plan when your emotions tell you otherwise. Mistakes are learning opportunities and should not be regretted. The next few weeks will be fun. 🤝