The Weekly Close

After a drama-filled FOMC week, Bitcoin closed an ugly bearish-engulfing weekly candle well below our $100k range high. This close is a confirmed false-breakout and deviation back into our previous trading range. The base case after a deviation back into a range is chop within that range until we see a weekly close below our range low at $91k or above our range high at $100k. Investors tend to swing back and forth between fear and greed during these time periods as everyone celebrates bounces and panics during drops.

Temperature Check

We saw a massive reset in sentiment this week. The hawkish FOMC meeting combined with the leverage liquidations brought the Fear and Greed Index back into the neutral region for the first time since before the US election. We knew Extreme Greed sentiment wouldn’t last forever and it was only a matter of time before this happened. Sentiment resets are healthy in a bull market as long as we manage our emotions and don’t get too fearful when the market drops.

Global Liquidity

The Global Liquidity index continues to be one of the best leading indicators for what Bitcoin will likely do with a 2-3 month lag. It was one of the main reasons I was able to convince myself to take profits last week although narratives and price structure looked bullish. The drop we saw in global liquidity this week is mainly driven by the strong dollar rally we saw after the FOMC meeting as the market is now expecting less rate cuts for 2025. The good news is that it’s only a matter of time before the dollar goes down and liquidity increases again because the highly indebted global economy cannot handle a strong dollar and high rates. This is why I remain optimistic for 2025.

The Dollar

We have discussed the DXY’s “risk-off” region for months and we saw Bitcoin immediately react once it broke higher into that range. This has been a huge anchor on global liquidity and risk assets as a result. The main driver of the the DXY is FED monetary policy and although Powell talked tough in the press conference, I think it’s highly unlikely we get only rate cut next year with a slowly weakening labor market and parabolic debt growth. We just need to remain calm and survive until the dollar weakens and liquidity gets pumped back into the system.

What’s Next?

The combination of a bearish-engulfing weekly candle close back into our range and falling global liquidity makes it quite likely that our base case over the next few weeks should be a decent sized correction for Bitcoin. This isn’t a 100% guarantee because there can always be an event that changes the current structure, but I like to focus on what’s most likely to occur and not what I hope will occur. The good news is that there isn’t really much to do during these Bitcoin pullbacks unless you are in leverage positions that will get liquidated or you have more exposure than you can handle emotionally during a drawdown.

My Current Portfolio

I decided to make no changes to my portfolio this week. Although Bitcoin had a bearish weekly close, and more downside wouldn’t surprise me, my cash position is still above my 20-30% target for Q4 2024 thanks to the profits taken above $100k over the past few weeks. My cash target for Q1 2025 will likely be 30-40% so this correction has given me a head start on that. I am quite comfortable with my holdings if Bitcoin ends up seeing a decent sized correction over the next few weeks and if anything I’ll be tempted to deploy some of the cash I harvested above $100k if we see a correction larger than 30%. I remain optimistic that we will see higher prices in 2025 so I don’t want to complicate things by trading in and out of positions too often.

P.S. If you made it to the end of this report thank you so much for reading and I hope you got some value from it. I know last week was painful for many of you, especially those of you that leverage trade or are heavily allocated to altcoins. During weeks like these it’s important not to get too attached to your portfolio value at the pico top and instead try and compare how you are doing today to a few months ago. I still think we have a great Q1 of 2025 ahead of us, but we’ll continue to monitor the charts and data as we approach that time window. 🫡