Capitulation to 10-14K or not? It is looking more and more likely that history will repeat

A week ago, I highlighted here that, as shown in the chart below, we were at the same percentage drawdown (~70%) since all time high relative to the 2013-2015 and 2017-2018 bear markets at the same moment in time. Hence, if we follow history, one would expect a similar capitulaion move to about 84% drawdown, which is around $11K per Bitcoin. I noted in that post that there are also reasons why one would not expect a further drop: instutitional adoption is incredibly high, Bitcoin did not climb as high from the bottom relative to previous bear markets, and every bottom indicator in this space has flashed. Given recent developments, however, a repeat of this capitulation move is becoming more and more likely. Let me elaborate.

The Bitcoin Returns after All Time High Across the Different Bitcoin Bear Markets (Source: Sam Rule)

Currently, Bitcoin is struggling to hold the 20k level and has closed many weeks and even months below the weekly 200 moving average (MA). This has never happened before. We even rejected off of the 200 weekly MA several times. This level has been a key support in the past and it looks broken. I cannot imagine how the 200 weekly MA could be retaken anytime soon.

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Bitcoin Chart on Weekly Timeframe (200 Weekly MA in Green)

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My favorite chart to keep an eye on is the total market cap chart, which represents the entire cryptocurrency space. What caught my eye is how we perfectly did a backtest of the 2017/2018 peak during the June 2020 3AC/Luna crash (highlighted with horizontal purple line), quickly recovering the 200 weekly MA. We are currently rejecting off of the 200 weekly MA. We have never rejected off of the 200 MA level before during a backtest, although we have spent max. 3 weeks below it in the past.

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Total Market Cap Chart on Weekly Timeframe (200 Weekly MA in Green)

The Bitcoin Monthly chart is particularly scary, and note that the higher the timeframe the more important the chart. We are currently rejecting off of the lower ends of the bodies of the three previous months - which is basically the 20k level- with a giant wick above the red monthly candle showing selling pressure there. We have 8 days to move up, or we are about to enter a world of pain, likely falling back to the next support somewhere around 13k/14k. There is basically air inbetween these two levels on higher timeframes.

Bitcoin Chart on Monthly Timeframe

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But Beyonderr, crypto has never seen this type of poor economic environment, so why are crypto charts relevant? Well I do like the data and historical perspective because it gives some information. But you are right, perhaps stocks are more indicative nowdays. This is likely why at the moment, we are heavily correlated with stocks, such as the S&P 500 Index. This correlation has never been so strong before. So much for our decoupling.

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The Correlation Between Bitcoin/Ethereum and the S&P 500

And how are stocks doing then? Overall, stocks are looking terrible. We are close to the June lows on the S&P 500 and the Nasdaq. If we breach those, expect Bitcoin to set a new lower low and likely capitulate (again). The Nasdaq weekly chart is pictured below, for instance. We are about 600 points away from the June bottom and piercing the June bottom means that we are below the 200 weekly MA. You can see on the left what happens when that level is broken. Why might that be likely? Well, there is little to no indication that the global markets are going to get better anytime soon, although there is a glimmer of hope in that inflation might have topped in the US and that the price of oil is coming down. However, Europe is in trouble and inflation here has only been rising. The war does not look like it will end anytime soon either. Moreover, dont forget that winter is coming.

the Nasdaq Chart on Weekly Timeframe (200 Weekly MA in Green)

Lastly, how bad is it? Well, in terms of economy and inflation, the US is doing good relative to almost all other countries. But even in the US, just how dire the situation is (i.e. how high inflation is) can be derived from how fast the FED increased interest rates from the start of increasing rates relative to previous economic downturns. Faster than ever. And Inflation so far didnt really go down in a significant manner. The FED even said we should expect more hikes, likely until the 2004 level if not higher. Oops.

Change in Fed Funds Rate %

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Conclusion

I wanted to share some data here, so it might inform someone's decisions going forward. I think a key takeaway is that new lows are likely and to just follow the stock market for now because that provides more valid data. The correlation is so high with BTC (and ETH) anyways. Make sure to look beyond this post, though, because I am also just a random person on the internets; I do not want to be responsible for anyone's investments. I dont like selling here because every bottom indicator has flashed in this space. But I definitely try to save up fiat -as far as Europe's living costs allow me- to buy a bigger dip if that situation presents itself. That would likely be a golden opportunity with a long enough perspective.

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PS. If it goes down, we can always just adjust our charts.

Just a joke :-) (Source: Jackis)