Bitcoin – is this the time to chase the breakout?

٢٤ أكتوبر ٢٠٢٣

Bitcoin has come alive and after a period of sleepy conditions, we’ve seen the price break out of the defined trading range it held since March, with the biggest high-low trading range we’ve seen since June 2022.

Our high price has been 34,742, the best level seen since May 2022, where the breakout has taken the rally that started on 11 Sept to 40% and 110% YTD. Client activity has naturally increased, with almost 3 in 4 open positions now being held long and looking for a push to higher levels.

The market has further increased the probability that a spot ETF gets formal regulatory approval – this view was given a boost with Blackrock sourcing a CUSIP and listing their spot ETF on the settlement and clearing platform DTCC - clearly a sign of sky-high confidence of an imminent approval.

Liquidations pushing price towards $35,000

The news set off a wave of buying, which took price through the range highs of 31K – importantly, this in turn saw shorts being liquidated across the crypto exchanges, with close to 350m being liquidated over the past 24 hours. We can see this short squeeze in the price action, with price falling from 34,742 to 32,510 in a short period.

We are seeing a period of consolidation and tight ranges (per bar) as the market catches its breath and asks what’s next.

The attractions of a spot ETF

A spot ETF is clearly a positive for the adoption story, and as many have opined. A spot ETF offers advisors and other market participants a regulated crypto vehicle to put to clients. This should help with their primary objective of boosting returns through increasing diversification in a broad portfolio and reducing variance.

It should also promote a migration of capital from BTC futures ETFs to the spot ETF, which should then flow through to buying in the underlying Bitcoin. This migration would be a function of the BTC futures curve and how the futures ETF faces the drag of negative carry when front month futures expire and rolls to the next contract.

The spot ETF will outperform a futures ETF on that basis, so it’s not just the regulatory environment that makes a spot ETF more compelling.

Will traders chase the rally?

The question is whether the move can kick up further, or at least establish a new trading range.
There is every reason to feel the market has largely discounted a positive decision on a spot ETF. However, as we’ve seen over the years there are few markets that promote FOMO and traders chasing than Bitcoin and that could drive price towards 35k and beyond.

The counter to that argument is we see a failed break and a reversal back below 31K – This reaction could be a very powerful statement and give renewed confidence to the short sellers.
As we assess the probability of both scenarios, to me it feels like the more likely scenario is the former breakout levels (31K) hold, and traders build on the move. However, trading is less about prophesying and more about reacting to movement and managing the risks around that.

For now, this break has some dreaming of the sort of explosive action we saw in 2020 and 2021 - but this time around it seems Bitcoin is less about being Wild West, and this once bad boy of finance is changing its ways and cleaning up its act.