One must once again wonder if Pennings CIO, Timothy Hellberg, has cracked out the good ol’ crystal ball as the price of Bitcoin follows an already highlighted path into the mid of Q1. On the 30th of January, we outlined in that edition of The Penalyst how we saw the 9th of February as the potential ideal entry point for longs, with the target of 52k for BTC. Although the rally started a couple of days earlier than anticipated, BTC went on to rally over +14% from the 9th, currently at the time of writing putting in a high just below 52k.

As predicted in the last report, ETF inflows are seeing an extensive ramp-up in inflows, especially after the Google ads approvals and the subsequent Super Bowl, although to our surprise the rumors proved to be wrong, with zero ETF ads showcased during the big NFL event.

We have a new market dynamic that is making BTC an easier asset to trade at the moment than ETH, and that is the fact that the futures funding rate is indicating that the majority of BTC volume is going through spot, rather than derivatives (although we do have couple chunky option expiries into the end of Q1 and into April), and a such one can conclude it is currently the ETF flows that seem to be the largest catalyst of BTC price movement. And these flows are currently moving in the same direction as BTC, up.

There is still room for BTC to run. Although greed/fear readings are moving well into overbought territories (greed), other supporting indicators are still suggesting further upside is possible. 

If you’ve been in the financial markets for a long time, you know that these types of greed and fear readings can take time to materialize and are not worth much by themselves. So we can conclude that we need to see some significant downturn in BTC price for this bull rally to prove over. The 48500 are providing the line in the sand.

Last report we gave our readers a direct insight into PCMs approach to the current levels, highlighting the breach of the 43k level as an area of interest to start building into longs, targeting the 50k area. Something we did, with great success. 

However, we currently don’t hold any short-term BTC exposure in our options portfolio, whilst keeping in-the-money exposure in ETH, and here is why:

As we highlighted in the previous report, there was a case, although not as strong but still possible, for BTC to move lower into mid-Q1. As a potential hedge for this, we bought calls in ETH, expiry end Feb, with the reasoning that if BTC interest would cool down, and ETFs would struggle with flows in Q1, we could very well see the market shift focus to ETH, trying to front run the inevitable future approval of Ethereum ETFs. 

This did however work out well in the other direction too, with ETH benefiting generally from the current bull markets, following BTC higher.

So as the headline entails, BTC or ETH? At PCM we wouldn’t want to enter new BTC positions at these levels, but on a pullback, it is back on the cards. ETH however is knocking right on the door of a major level at the time of writing this. A break of 2750 is significant for ETH, and if done with conviction, we would expect ETH to make a rather violent push into the 3400 mark in a short period of time. 

It’s a high-risk, high-reward play, as the level is key and needs to be pushed through with conviction but since we already have long exposure to the level, it makes sense for PCM to keep holding for the time being. 

Furthermore, one of our mathematical models currently in RnD, generated a long signal on the 7th of February for ETH. This model has an average win rate of 87.5% historically, so it can be of great guidance for PCM's work.

Our models are working out very, very well so far in 2024 making these reports undisputed evidence of our accuracy in managing the digital asset markets. The one thing of note we would like to highlight though, is the same area of some degree of hesitance is the fact that everything seems to be moving at a faster pace than we anticipated. And it is still too early to determine if our complete 2024 roadmap needs to be compressed or if this is an isolated occurrence for Q1.

*Disclaimer: This article is not financial or investment advice, nor should it be perceived as such. Penning Group, it's subsidiary Penning Capital Management A/S, and the author (Timothy Hellberg) shall not be held accountable for any misinterpreted information by the reader. If you are interested in learning more about investing in the DeFi space, please get in touch with us. 

The Penalyst - February Market Outlook

Markets seem to be moving a bit faster than anticipated in our models laid out in the  2024 outlook special report. With both highs and potential lows coming in earlier than expected it begs the question, where to next? Penning Capital Managements CIO,  Timothy Hellberg is here to share his thoughts in this edition of The Penalyst.

Adaptation and diversification. Those are the two key values of PCMs investment & risk strategies. The predictive model for 2024 of Bitcoins price that we paved out earlier this year, seems to play on the correct levels, although moving at a faster pace than expected. 

The January high came in earlier than expected, much due to more aggressive front running of the long-awaited ETF approvals from the SEC in the US, and one has to wonder if the rather violent selloff that followed was strengthened by the anticlimactic news as the SEC Twitter accounts where hacked. Buy the rumor, sell the fact has never been a more viable way forward. 

What followed was a good couple of weeks with most of our proprietary predictive systems showing most, if not all, readings in the red. There was simply no reason to go long. Yet…

At PCM we reminded ourselves of our two core values for the investment & risk work and took a slower approach to the market, waiting for a clearer direction.

So where do we go from here you might ask yourself? Well, as markets are moving faster than our model for 2024, it is still a bit early to determine if the whole model just needs to be shifted to the left, and speed up, or if we are just in for a couple more fluctuations than expected. 

What we can say, is that BTC put in what seems to be a short to mid-term low around  38.550 which for now invalidates any short bias on our side. Mainly of this in combination with several of our models turning green on the same timeframes, the most likely way right now seems higher.

The chart tells us the 43-44k area shows the immediate signs of resistance, although in the bigger picture, this is pretty weak, as it is a purely technical level for now.

In the early days, I just studied and traded the principles of Elliot Wave, a predictive way of looking at the market in terms of waves up and down, based on fractals with the idea of identifying investor behavior and capital flows.

Looking at BTC from an Elliot Wave perspective would suggest we are now ending wave  4, with wave 5 aiming for the 52.700 level.

I personally think that is a bit aggressive, but from a technical point of view (and the below-described fundamentals) I would say the 50k level for the end of Q1 is a very viable target. This would further be in line with shifting the 2024 model to the left,  speeding it up.

Is this written in stone? No, of course not. But as investors and traders, we need biases and broader projections to work out of.

Earlier in the month I outlined a scenario in a post on LinkedIn, where I highlighted the  9th of February as a date of interest to start looking for long exposure again, IF this bottom cemented itself, as it’s done now. The reason for that specific date is that there is a lot of rumors in the market that several of the large ETF issuers have bought extensive marketing packages for the Super Bowl final, which would mark the first real milestone of Bitcoin ETFs being marketed to the general public.

Further supporting this thesis, is the fact that as news over the weekend hit the wires of  Google having approved advertising of crypto ETFs, the price of BTC popped +2.3%  over the next few hours. 

A question that the markets wanted answers into the launch of the Bitcoin ETFs, was how these new, large-scale institutions were going to source the supply for their rather large orders. And we got a rather surprising answer to that question.

We typically see miners stockpile BTC into halving events as the one coming up in April,  but just the other week we saw the biggest miner outflows since 2021.

I believe the large institutions decided to source some supply from ”the source”, willing to offer miners a premium for ”selling early”, as the institutions don’t mind holding for a  long time, and the miners most likely got a deal that made sense economically.

And so to wrap this up, we are seeing the Grayscale outflows significantly slowing down,  which was an absolute necessity for the price of BTC to stop its decline. 

Furthermore, Tether minting has resumed, indicating that fiat is moving into digital assets again, with 1 billion USDT minted at Tether Treasury on Monday the 29th in the form of an authorized but not issued transaction. This means this account will be used as inventory over the upcoming period suggesting there is an upcoming, large-scale need of moving fiat into the system.  

If you made it all the way here, I’m sure you now understand the technical levels outlined in the beginning of the report make a lot of sense, and are backed by some real solid macro developments.

At PCM, we are watching the 43k level as the area of interest to start building into longs with the 50k area as a target into the end of Q1.

Let’s see what the future holds in store.

The Penalyst - Market Overview & Outlook

As 2024 gets underway, it’s that time of the year for Pennings CIO, Timothy Hellberg to share his market projections based on the current information at hand, and what he thinks will be the way forward. In Q1 of 2023, I made the projection for Bitcoin to end the year between 46k to 50k. And as all of you know, Bitcoin came just short of 45k in December of 2023. So the projection was a bit too aggressive, but still very close. Let me take you through my current reasoning for 2024.

2024 presents a rather unique situation. With the BTC halving coming up, in combination with US elections and a shift in Central Bank policy, I do believe we have a better possibility to project the price development of BTC in 2024 than usual. 

In this special edition of The Penalyst, I will take you through what I believe to be the most influential market happenings we have in store, and lastly, a detailed outline of what I’m expecting the price to look like. 

With that said, it is important to point out that this analysis is based on current information at hand, and there will most likely come different events over the next 12 months that could not be foreseen and move markets in whatever direction. But as traders and investors, we need a baseline to work out of and shift our biases accordingly when the market changes.

It is no secret by now that BTC tends to rally into halving events as miners continue to stockpile Bitcoins into the event. This year is no different than any other halving year, and with the potential looming approval of ETFs, we are creating a little bit of a “perfect storm” with Bitcoin circulating supply going down whilst the demand increases. 

With that said, I do however expect the issuers of these ETFs to have this well in mind, and that is highly market-positive, as I think issuers of such as Black Rock are willing to pay a premium now, for long-term exposure. 

So whilst I do not expect either of these events to be the big driver of Bitcoin price for the whole of 2024, it does set off for an interesting Q1 and especially Q2. 

On the note of the ETFs, I think it’s important to mention that I do believe markets are not quite pricing in the risk of approval being delayed once again in January, causing a 15-25% correction in BTC prices. Although I don’t see this as the high odds outcome, I do believe it has a higher chance than what the market thinks. 

However, I don’t see this as a problem. ETFs will be approved in this round or the next, so by now it is just a matter of when not if. In addition to that, I am expecting at least ONE larger correction in BTC prices during 2024, and I’m expecting this to either trigger in mid-January due to the ETFs not being approved, or sometime end Q1, much in relation to the markets shifting focus to Central Bank policy. More on that later in the report. 

It’s election year in the US, and by the looks of it, we will most likely have a Trump vs Biden re-run. Think what you want about US politics, but I do think there is an overhanging chance of Trump taking it, giving a republican government. This in combination with the SEC being forced to stand down more and more on digital assets, as well as US-tied exchange Coinbase most likely grabbing more and more market shares after the Binance debacle and ETFs using Coinbase, I’m expecting to see a new US government, Republican or Democrat, with a more friendly stance on crypto. 

Additionally, with my bet being on Trump taking home the win, we might even see a rather dramatic shift in US politics trying to “welcome crypto back” to the US. 

It is also important to point out the importance of economic policies, and once again I think here that a Republican president will be more beneficial in terms of access to liquidity in the general finance space, which in turn would also benefit the digital asset market. 

As we enter the run-up of the campaigns, presidential candidates will scramble for votes and we can expect additional comments on digital assets in relation to this, that can swing prices in either direction. However as mentioned above, I think either political side will be beneficial for the price of BTC in the long run, albeit one more than the other. 

A new, or re-elected president tends to want to kick off his new term with some market-boosting actions, showing the voters they made the right decision and how good they are going to live under these new policies.

I believe this will be the largest driver of BTC prices throughout 2024. ETFs and the halving are stealing all the limelight at the beginning of the year, but I do believe the market will move on from this faster than what people think, and it will be right back at looking into inflation and central banks cutting rates. 

I am expecting inflation to cool at a steady pace, and the US FED moving along with rate cuts in an appropriate pace. This will free up liquidity in the financial markets, some of which will find its way into digital assets too, providing the need for BTC to expand in value. With the approval of ETFs, there will be an ongoing demand big enough for this liquidity too, which will translate into higher prices. 

Several of mine, and external, inflation models are all pointing in the same direction, and this makes it much easier than usual to predict central bank policy, which we then in combination with the other above-mentioned points can translate into an actual roadmap for BTC prices in 2024. 

On a last note, if we do get approved ETFs in January, I am expecting a correction in BTC prices to begin sometime mid to end February and trickle into the end of March before moving higher again.

This is because the inflation models suggest mixed figures during Q1, which most likely take the spotlight rather quickly after the ETFs and cause some anxiety in digital asset markets. This anxiety will hit the parts of the market that are the most overleveraged, and I expect an ongoing unwinding of such positions into the end of Q1 bringing prices down 10-20%.

This is simply a projection based on a collection of underlying models. It’s in no way 100% accurate and swing form for error margins needs to be accounted for. 

What it is, however, is a basis, a sort of roadmap that we use as the basis for the investment work at Penning Capital Management. We don’t take the values at the specific valuations; we use them more as a guide for what volatility we can expect in combination with a directional bias on a monthly basis. 

2024 might turn out completely different from this, but heading into the year, this is our roadmap. 

-       End Q1 correction (≈ minus 10-20%)

On a final note, once again, this is not a recommendation or prediction. It’s a projection, and projections change. This model will change over the year as we enter new economic data into it. It is provided for educational purposes, not as a basis for investment advice or similar.

*Disclaimer: This article is not financial or investment advice, nor should it be perceived as such. Penning Group and the author (Timothy Hellberg) shall not be held accountable for any misinterpreted information by the reader. If you are interested in learning more about investing in the DeFi space, please get in touch with us.

The Penalyst Special Edition - 2024 Outlook

Markets played out to the dot as we expected last week with Bitcoin showing strong signs of resilience and breaking out of its technical wedge with confidence. We are now entering some strong seasonal patterns that could very well play out and push this narrative higher. 

The NASDAQ - Bitcoin correlation seems to reestablish itself again to some extent, and that aligns with us just moving into a strong seasonal pattern for both assets.

The 3-month window of June to August has on average added +8% for NASDAQ  investors over the last 10 years. Add to that, July historically being one of the year's strongest months for Bitcoin, averaging returns of +11%, and the total for June to August coming in at +23%. Let us see what this year holds, but this would be very much in line with my previously expressed view of current risk sentiment, and the push higher for  Bitcoin to reach my year-end prediction price.

BTC did break out of the technical wedge with confidence and hasn’t looked back since. Both moving averages have been taken over by bulls, and we have seen prices make a temporary pullback as we re-entered the large liquidity zone.

I would expect the 30.000 level to be tested in the near future. 

The greenback continues its push higher, with a clear channel to track.  

We can pull back quite deep from here and still remain in the bullish trend, with a pretty steep fall height to both the lower bound of the channel, as well as the bullish support of the two moving averages.  

The US might make a full push into the 105.50 highs before turning lower but this one is a little bit tricky to judge right now. 

However it does not seem to have too much of an impact on the price of Bitcoin for now,  so as long as that continues, I don’t mind the greenback outlook remaining a bit cloudy.

The NASDAQ is showing similar signs to the US dollar, with a clear bullish channel to track, but prices have just now recently broken out even higher.  I would consider it overbought at this point in time, so a pullback is expected. But just as mentioned with the greenback, we have a long way down until the outlook turns negative, so I would consider pullbacks as technical liquidity grabs, rather than a change in the general outlook.

The theme seems set for the US dollar and the NASDAQ. Pullback then higher would be expected in the near future. How deep of a pullback one can only speculate.  In either way, Bitcoin remains well supported technically and fundamentally with everything remaining in line for three strong summer months for the digital asset to continue higher.

The Penalyst: Bitcoin ready for a +23% move higher?

On-chain metrics continue to indicate a contracting digital asset market but at the same time, we have fundamental developments in the global macro economy brewing beneath. A scenario that most funds and retail investors are missing. There is a massive short squeeze on the horizon, similar to the V-shaped bounce in equity markets we saw during the pandemic. And until that happens, digital assets are still showing resilience.

I've already talked about, over and over again, how I’ve not expected 2023 to provide the raging bull markets we’ve seen so many times before in digital assets. But rather a  slow and technical grind higher toward my year-end projection of Bitcoin prices. And so far there has been no reason to change that view.

In the last report, I talked about hedge funds holding a massive amount of short SP500  exposure, and what this could mean for the markets. Now, that number has only continued to grow, and we have moved well into the pandemic (2020), EU debt crisis (2011), and the Flash Crash (2015) levels. 

If you remember the remarkable short squeeze US equity markets provided in the pandemic, you understand the potential ramifications of such a large portion of the market being on the same side of the boat.

Market participants are still pricing in worries about high inflation and the US debt ceiling as major issues. But the FED, and more specifically Powell speaking at a FED  conference in Washington, clearly indicated that the FEDs benchmark rate ”is high enough” and that this June meeting will most like be the first aft 14 months and 10  consecutive rate hikes that we see a pause.

It is my belief that this aggressive economic tightening will continue hitting the US and global economy hard, but not to the point of a global massive recession that market participants seem to be betting on right now.

The SP500 and the NASDAQ are both +10% and +22% so far, and we are seeing similar resilience in the price of digital assets too. Pullbacks are of course gonna happen, but so far they have been relatively shallow and in no way considered trend shifts. 

So combined with what I spoke about last week, there is still a big chance of this massive short positioning ending up in a situation where it needs to be covered, fast.  And when that happens, we will not only see equity markets pick up pace but also digital assets will follow along.

As mentioned, BTC has pulled back but is showing resilience value-wise considering the negative on-chain data clearly showing a contracting market.

The extent of these negative on-chain metrics actually has me surprised that BTC hasn’t visited the 25.000 mark and even sub this level with around 24.600 showing to be the main area of liquidity to pick up and propel a move higher again.

Instead, we’ve seen price form a technical wedge formation, and break out of this momentum pattern to the upside just recently. It is still a bit too early to determine the validity if this breakout, but if we can close outside of the wedge pattern for a couple of consecutive days now moving forward, a test and potential break of the moving averages is definitely on the table.

Another asset showing resilience is the US dollar. Last update I spoke about how the greenback looked ready for another beating, after printing red candles after red candles, but it steadily picked up from here and moved higher. Once again, making the  BTC stability even more impressive, as this rallying US dollar easily could’ve pushed BTC  down further.

However, my old FX trading genes tell me this bullish move in the USD is not necessarily generated by dollar optimism, but could rather be the sign of liquidity influx into the currency from both safe haven flows and risk appetite for US stocks. Either way,  the expansion of available liquidity is proving positive for digital assets, so this greenback rebound is not currently worrying me but rather another sign of digital asset strength.

From a technical perspective, this latest USD rally is showing some rather massive bearish divergence, so when this thing breaks to the downside, we could be in for some fast moves.

As mentioned at the beginning of this report, the NASDAQ is on a complete rocket launch higher and has just recently overcome previously highlighted resistance at  13712.

The bullish trend remains strong, even still with room for rather significant pullbacks and still remaining in bullish territory (highlighted upwards trend channel).

A chart that does not go hand in hand with hedge funds massive short positioning.

So now I think you see the complete picture. Digital assets and BTC especially, showing some incredible strength all things considered. You just have to look beyond the chart. And adding all these factors together, I am highly surprised we haven’t visited sub  25k in BTC. What’s going to happen once pandemic volume levels of equity shorts start being covered? 

Stay up to date by following The Penalyst.

The Penalyst: Pandemic size short squeeze on the horizon

Digital asset markets suffer from some fatigue following the Ethereum Shanghai upgrade, as well as US regulatory chaos. The Penalyst would argue the market is in a little bit of a transition face right now, both from a value perspective and also from a fundamental and structural perspective. However we do have the BTC halving coming up, which in combination with US inflation readings are providing potential for one of the simplest, but potentially highly rewarding, investment strategies in a long time. 

In the last update, I talked about how I expected 2023 to be a slow grind upwards, with classic technical pullbacks offering good opportunities for cost averaging into positions. 

Looking at US inflation releases, BTC keeps following an easily predictive pattern of selling off into these releases, only to rally afterward. And I’m talking about long-term trends here between the monthly releases, not sudden rallies/drops. 

With the “flight to quality” we are seeing, I would continue to argue BTC remains the main go-to for these types of strategies, and with the upcoming halving, timing-wise suggests now is the correct time to start implementing a strategy like this. 

The US economy is coming down hard, and I expect US inflation to continue to fall, maybe even as far as sub 2% into the end of 2023. Add to that a growing performance of US tech stocks, and more and more metrics are lining up for a continued BTC, slow and steady, rally. 

As such, someone looking to add BTC long exposure dips into each monthly US inflation report is providing great cost-averaging entries into next year. 

Especially now with the dips being fueled by regulatory issues coming out of the US, causing short-term FUD. But long term, it’s my strong view that these will be heavily outperformed by positive regulatory news from both Hong Kong, the UAE, and to some extent the UK and Europe. All of these jurisdictions are working closely with large-scale market actors, and trying to win the race to become the optimal crypto area.

On the technical side, BTC has taken a breather falling back out of the previously highlighted liquidity zone, making a classic liquidity sweep clearing out longs under the previously highlighted support zone, only to then squeeze freshly added shorts by regaining the zone in bullish territory again. Really classical price action that flushes out short-term positions and adds liquidity to long-term positioning. 

In addition, we have the chance of some massive short squeezing in the NASDAQ, which could add fuel to the rally, but more on that in the below section for the NASDAQ. 

On the upside, we need to see BTC overtake the short- and long-term Moving Averages before any real test of the large liquidity zone can take place, and a new push towards 31 000. 

I am expecting this rally to resume sooner rather than later.

Just as we’ve seen BTC taking a breather, so has the US dollar been allowed to get back off the ropes and for a period, saved from the vicious bearish pounding it has been suffering. 

However, it seems the prime Mike Tyson bears are gearing up again, and the US dollar has begun taking a rather heavy beating over the last 24 hours. 

I’m expecting a test of the moving averages in the near future, and then a test of the lower bands of the recent consolidation pattern. 

Maybe, as the USDX test of 100 is on the horizon in the very near future.

US tech stocks continue to show resilience, and as mentioned in the BTC section above, there are high odds of this continuing.

Hedge funds remain massively hedged on their equity holdings. Looking at SP500 CFTC data, positions are equivalent to 2008 financial crisis levels and 2011 EU debt crisis levels. 

Although this doesn’t necessarily mean Hedge funds are short, it’s more likely to be hedging positions, they will need to exit these contracts at some point, and when doing so a rather massive short squeeze might be on the books as everyone scrambles for the exit. 

So, when will that happen might be your question? Well, one can only speculate. But I wouldn’t be surprised if the FED Jackson Hole meeting at the end of August will be a massive turning point with the FED signaling future rate cuts, and such triggering a change in long-term positioning from hedge funds.

The year is progressing as expected, and it’s making markets rather easy to navigate. Penning AIF is up 61% YTD as a result of this, and hopefully, any readers of these reports are finding similar value to their portfolios from the information in the updates. 

The Penalyst: The Return of Mike Tyson Bear

After a brief pause, The Penalyst is back once again with a current take on the market.  BTC and ETH are ready to move higher after a short-term pullback and continue to cement themselves as individual assets from the stock markets that are not fairing well in the current risk environment. Read on to learn what’s next, and how the rise of new products in the market space also affects future price action.

2023 will most likely not be the type of explosive market trends we have gotten used to seeing in digital assets from previous years, but rather a more traditional cycle trend type of market, where we move higher over time, setting in classic pullbacks that offer great buying opportunities at a discount, with the odd splash of headline volatility.

The reason for this will steam from mostly two main factors, being the fact that with current central bank policy as well as its effects on the general global economy, I don’t see the reason for quick and sudden shifts in policy. These will come more gradually as we move in tandem with the cycle. Now of course we can never say that with full certainty,  but how Q1 has developed everything points to gradual shifts rather than emergency policy change as it stands now. 

The second reason for the slower, cyclical trend type of price action can also come from a more technical view from investors. Institutional funds are flowing into the digital asset space at an astonishing speed, and with them comes a plethora of new products too.  Mainly the rise of structured products, or as Penning has chosen to label them: SDAPS  (Structured Digital Asset Products). This new product class consists of sub-portfolios combining mainly options and other derivatives in complex structured products. 

So why am I mentioning this? With the rise of these products, a type of investment often applied by institutions, a lot of market liquidity goes into technical market structures from these options portfolios rather than fundamental basis or the traditional buy-and-hold.  As such, the market also becomes more technically oriented with Bearish products dominating ahead of, and during pullbacks. And Bullish products dominate ahead of,  and during the trend grinding higher. 

This comes especially from the nature of these products often trying to place themselves  AHEAD of the market moves, and as such also contributing to making for example a  pullback play out.

BTC continues to try and swallow up the supply offered in the previously highlighted liquidity zone, and is doing a decent job at doing so without falling back too much.  Right now, we seem to have put in a temporary bottom and are ready to make a run toward new highs. We do have some macro news coming this week, so this could be the catalyst needed or the lid that keeps BTC in its current range for now.

The US dollar still gets no love, and after having put in a new low, whilst still being capped to the upside by both short-term and long-term moving averages, this now opens up the way for a run into the lower liquidity zone. As mentioned above, we do have some macro data coming out this week, so expect this to either add fuel to the fire or provide some support for the greenback for now.

US equity markets continue to break the BTC correlation more and more, and I moving forward only give brief comments on it, as it has now become more of a general risk sentiment indicator than anything else.  The NASDAQ looks very heavy here, and I wouldn’t be surprised if we see a run lower to test the rising trend line from this year's breakout structure. 

Everything seems on track for my year-end prediction of BTC, and it is nice seeing BTC  breaking the Nasdaq correlation, creating more of its own identity.  Next week, unless we have a lot of changes in sentiment and market direction, I will focus on the upcoming Bitcoin halving in combination with fair value analysis of BTC  which combined can provide a very simple yet effective investment strategy for BTC.

The Penalyst: Market Overview & Outlook

Markets end up in limbo while waiting for any major catalyst to propel them further. The FED keeps reiterating ”higher for longer” while the rates markets begin pricing in rate cuts all while the demand for the FED ”hidden QE” in terms of their discounted borrowing program soars showing a healthy new level of willingness to take on risk in the markets.  However BTC is still knocking on the 30k door, and the Penalyst is here to tell you why we might not have broken through yet. 

I’ve said before that the US tech stock and BTC correlation has been off now for some while, and this was all so clear last week as the NASDAQ went on a decent bull run,  while BTC moved more or less sideways.

The soaring demand for the FEDs discounted borrowing program suggests the financial markets are willing to take on risk again, but why didn’t this show in the digital asset space?

Well, for one we got the news of US regulators going after Binance. Some would argue that if there ever was a ”to-big-to-fail” entity in crypto, Binance would be just that so this news was not taken well by the market. Additionally, the focus on crypto investment naturally shifted for several Binance investors, especially larger whales, and institutions to diversify exchange risk exposure by instead moving funds to other exchanges until further clarity has been brought to the situation. A thesis supported by several on-chain data metrics too.

Adding to that, the US government announced that they were going to sell a rather large amount of Bitcoin confiscated from the Silk Road shutdown in increments over the next months, acting as almost a sort of involuntary temporary QE of the price of Bitcoins. 

I've talked about this before, the need for supply coming into the market meeting enough demand to be swallowed up for a true new bull cycle of the digital asset space to take place. And although we can eventually get there, the news of supplying such a high amount of BTC into the market does not have the demand to meet it at this point.  However, this type of market dynamic should really just be seen as a short-term discount for the long-term investor.

There isn’t much to say on the charts this week. Bitcoin remains at the border of the previously highlighted liquidity level, still, supported by both long and short-term moving averages suggesting there is a higher likelihood of the price pushing higher than lower.

Levels remain the same, and I still expect a visit of 30-32k before any larger pullback.  With a new quarter taking off, will we see some larger inflows into the mother of all digital currencies as institutions position for the coming 3 months under the newly formed ”risk on” sentiment?

The US dollar continues taking blows to both the body and the head, fairing somewhat well considering how it’s getting pummeled against the ropes recently.

Back in 1971, US President Nixon removed the gold standard, letting the value of the greenback flow freely for a couple of years, before 1974 when the US and Saudi Arabia struck a deal determining all oil transactions to be settled in US dollars. As such, the US  dollar gained a new unofficial standard, the oil standard, which cemented the US dollar as the world's reserve currency. Until now.

Last week several market participants, including Saudi Arabia, Brazil, Russia, and China were rumored to leave the greenback behind them and start settling trade in other currencies. Although we yet have to see this layout, and the effects wouldn’t be fully felt until several years down the line, it would suggest the future value of the dollar would be more connected to the US economy rather than anything else, and with current fundamentals of the US, the greenback to further hits from this potential scenario.

From a price perspective, levels remain the same and the index is still weighted by both moving averages, suggesting further downside. 

I highlighted the potential for the NASDAQ to move higher last week as an effect of quarter-end flows, and we saw just that. The index managed to break through the moderate resistance of the previous triple top and move higher, putting 13712 on the map.  

But smooth sailing up there really requires no worrying data to hit, nor any negative news headlines coming out and although it is possible, it’s not too convincing in these markets.  

The market is entering the new quarter with positivity but caution and we await a larger market catalyst to get things moving again. 

The dominoes of the developing global banking crisis keep falling and getting bigger and bigger. All while the US dollar is losing both value and status while US policymakers show how fragile and erratic banking regulation and guarantees are. And in addition to that, money flows show some interesting signs, that could lead to 30k BTC within the next couple of weeks. The Penalyst is here to tell you why. 

There are some interesting themes going on in the markets at the moment. Inflation worries have been replaced by a growing banking crisis, and it’s becoming increasingly clear that the traditional financial system is still very fragile and affected by policy and regulation. And in times like these, just policy and regulation seem to be made up on the whim. 

Let me give you an example. Janet Yellen last week first said that the US government was NOT going to provide blanket insurance to bank depositors, however, she instantly pivoted that by saying that further measures were discussed. But just think of that for a second. About 40% of deposited funds in the US are not eligible for protection at this point in time. That’s trillions of US dollar the US government are just going to blanketly all of a sudden backstop and guarantee? 

That’s an immense policy action to undertake. Almost as crazy as printing billions upon billions week in and week out without thinking of the long-term effects during a global pandemic. Oh, wait…

This solidifies the space of digital assets more than ever, as these types of “on the whim” major policy changes can’t be incorporated into a binary decision system.

This, along with last week's mentioned aspects, and some new ones further into this report, is pushing BTC higher. 

We are seeing some very interesting money flows at the moment. During Asian trading sessions, digital assets are being sold off, for the benefit of moving into distressed securities and lower-risk assets at the moment. However, when the US comes online, the demand for crypto picks up massively with both retail and institutions wanting to both move away from TradFi banks to limit baking risk, as well as from a pure speculative perspective. The Asian session supply gets easily gulped up by the US session demand. This is a beautiful market dynamic that is currently working very well in favor of higher BTC prices. 

On the technical side, previous levels remain the same, with prices knocking on the current liquidity zone, which I expect we move further into, and would be prudent to add any long around the 30-32k area.

The dollar is getting hit from several fronts, not only the macro outlook. In FX markets, you trade everything relative. To determine the value of US dollars, you need to price that value in another currency. And the big counterpart to the USD for this is namely the Euro. And the euro has been on quite an amazing bull run lately. 

So you are seeing from a relative value perspective other currencies provide more attractive storage of value than the USD, making money flow out of the USD and into other FX, pushing the USD down, which also helps the price of BTC rise relatively.

The NASDAQ is proving a bit of a tougher nut to crack, but as highlighted before, the US tech correlation to digital assets is not what it used to be. 

The NASDAQ was able to rebound higher but has been capped by a double top forming around 12883 which is an older level of resistance I’ve been highlighting for several months now before the tests even began.

This area when zoomed out is a pretty shallow rebound, which doesn’t offer any high conviction. We need to see this level be confidently overtaken, until so a move lower first for a test of the 200d moving average seems more likely. 

However, we are moving into the quarter end, and fund managers will want to show clients the “correct” holdings on their balance sheets, and this combined with the previously mentioned Asian buying of TradFi assets could very well be just the catalyst that US tech stocks need to break higher.

So with all of that said, I am expecting the 30-32k area in Bitcoin to be hit, maybe as fast as mid this week already, and price action there will be key into the new month and the new quarter. 

As seasoned investors get 2008 flashbacks, a new banking crisis shows its ugly face to the global financial markets. And as the dominos start to fall, they get bigger and bigger spreading fear across the board. However for the digital asset market, there is a silver lining to what’s going on right now, and The Penalyst is here to tell you how and why.

So I highlighted these weeks a couple of weeks back, as highly volatile and as a reference point for how the market would move forward. And that is surely what we are seeing.  

I also posted our special report a while back, talking about ”The Crypto Spring” which seems to now really gather some momentum and melt away the fears of the cold and long crypto winter we now are coming out of.  

And this paired with the still high uncertainty glooming across markets, we see what could best be defined as ”a flight to quality” with Bitcoin being the largest winner.  

One could almost wonder if we cracked out the old crystal ball again, with the market moving very much in line with our broader analysis of developments, as well as our more narrow analysis of the actual charts, with Bitcoin moving very well as per highlighted levels for months now.

As I mentioned in a LinkedIn post, done a couple of days ago, the FED last Monday commenced a sort of hidden QE that hasn’t been widely reported about. And now,  during the week, further news brokers of all the major central banks coming together in further easing operations to try and steer clear of a worldwide banking crisis.  

As such, we are seeing fresh liquidity coming into the system, which is an absolute core necessity for such a young financial ecosystem as the world of digital assets to be able to expand.  

As a consequence of this, we saw Bitcoin do a firm and decisive break of the 25k  highlighted level, which opened up the way for a test of the 30k liquidity zone that ranges between just south of 28k and just north of 32k.  

The market needs to be able to digest the demand, as well as the influx of new liquidity at these levels before we see a push higher. However, a test of the upper band of the zone around 32-32.5k in the next months is very much on the table.  

It’s still a bit early to make any year-end projections, but with if the market continues developing in this manner with almost a perfect trifecta of factors for BTC of added liquidity combined with a flight for quality as well as a weaker dollar, I wouldn’t mind holding the area between 46k-50k as a possible year-end price.  

To the downside, we are not supported by resistance turned support at 25k, as well as both the short-term and long-term moving averages.

The US dollar is not fairing well with this new injection of fresh liquidity. It is not only through the operations carried out by the FED, but the joint statement of central banks across the globe specifically mentioned their liquidity operations being USD nominated and targeted, as such the USD taking even a further hit.  

Although we might still see short-term fluctuations, this development should have us seeing the USD gradually decline, and a test of the 101-100 level in the not-too-distant future is very much on the books and I would expect a full extension into the 99.50 - 97.70  liquidity level in the following months.

US tech stocks are looking constructive as per the latest developments, although I would be careful with further direction as we are yet to see what weighs the most for actual corporate earnings here. Will the injection of new liquidity be beneficial enough that a  majority of companies benefit to the extent that it offsets the issues of higher interest rates, burning inflation increasing all producing costs as well as general recession issues? It’s too early to say, but I would be inclined to say no, not as it stands now.  

However, this isn’t as important as it used to be, because as I’ve highlighted before how markets have developed the Crypto - Nasdaq correlation has not been working very well lately.

The world of digital assets is starting to cement itself in a rather new position that is increasingly interesting for the financial markets across the world. Really beginning to carve out an independent and defined place in the market is attracting more and more professional money, seeing a paradigm shift in what digital assets actually can provide.  

The days of moon boys and degen gambling will still exist in the low liquidity meme coins, but the general market is making a turn into more complex, low-risk high-yield products with the tokenization of assets growing exponentially. 

And this is a part of the market that Penning will pioneer over the coming years. 

The FEDs “higher-for-longer” mentality hits the US banking sector and the largest banking crash since  2008 is in full effect. Effects spill over into the world of digital assets crushing USDc and showing the immense vulnerability of traditional stablecoins. Meanwhile, digital assets re-gain ground into the new week and The Penalyst is here to give you his take on the situation. 

There’s blood in the waters, and while most swim for the shore, the sharks of Pennings alternative investment fund are instead circling the waters as they smell opportunity.

So over the last couple of weeks, I’ve been calling for caution as well as highlighting the expected volatility and risk coming into the markets at the end of March and the beginning of April. And boy oh boy was the timing of such cautions on point. 

The FED has a tendency to keep poking the market until something breaks, whether it be through immense quantitative easing or through vicious hiking cycles. And one could very well argue that the  FED just broke something with the US banking sector taking a massive hit. The market is now pricing a 74% chance of “only” a 25bps rate hike in march, and all major investment banks changing their outlook to very uncertain. 

We still have the risk of inflation, so what exactly the FED will do, we do not know. However, one thing we can be sure of is that they will have to make changes to their approach going forward.

This combined with the FED issuing a “hidden” QE plan going into effect in the near future, there are some positive headwinds for digital assets too.

The market is still in a transitional period, but for the long-term investor not to fuss with short-term noise, this is the time to start deploying your plan.

BTC is starting the week regaining ground after some rather violent sell-off into the weekend. This is as news breaks of depositors being bailed out by the US government in failing banks, but also Binance moving over 1 billion worth of originally stablecoin nominated funds into spot crypto.  

BTC continues to trade with clear levels already highlighted from before, with the 200-day moving average remaining our line in the sand for a structural shift into a prolonged bear market.  

To the upside, the 30k liquidity zone remains the target for now.  

On-chain we can see that volumes are picking up slightly but in a good way where it seems investors are picking up coins at a discount and looking to hold these rather than offloading them at any sign of profit.  

Additionally, looking at BTC’s realized profit and loss ratio (RPNL) the structure is similar to what we saw in 2018 and 2015, where we have just regained positive values again, and this typically signals the beginning of a longer-term uptrend. However this comes with a couple of successive dips to the trend in the beginning, and these can be rather large, as offloading of the profits become too great for the market demand to soak up initially.

The US dollar is rejecting nicely previously highlighted resistance and is currently holding onto minor support. However the short-term moving average has been lost, so for now the dollar is signaling further downside.

We do however have a very data-heavy week, and we are not past the previously mentioned three weeks of volatility and structural changes to market direction, so do proceed with caution.

The Nasdaq hit right into my projected liquidity area of 12470 before reversing lower, and naturally taking a hit here from the banking failures in the US. But as mentioned in previous reports, the  Nasdaq – BTC correlation is and has been, off now for some time so I use this more as a risk sentiment indicator right now rather than the normal correlation.

So to round off, there are some signs of sunlight between the clouds on the stormy sky that is the digital asset market right now. We just need to navigate these next couple of weeks for a better understanding of what the direction will be in H1 of 2023. Expect a data-heavy week with further volatility and violent price action, so proceed with this in mind.  

Silvergate news puts a dent in the brewing crypto rally as we head into the last month of Q1. And oh what a month we got ahead of us. The following three weeks are being labeled as ”the 3 most important weeks of H1” by trade desks across the world and  Pennings Head of Fund Management, Timothy Hellberg, is here to tell you why that is, in this week's edition of The Penalyst. 

Oh boy, oh boy. No other segway felt appropriate to begin this week's deep dive into the financial markets and the volatile world of digital assets.  

Just as an experienced sailor watches a storm forming far off in the distance, the team at  Penning is preparing for the three coming weeks. 

I’m not gonna spend to much time on what all of you already know. Yes, crypto pulled back. Yes, the risk asset correlation between stock indices and crypto is currently off.  And yes, news of Silvergate imploding and the issues for USD fiat transactions this already seems to be causing is not doing anything good for the markets.  

However, if you zoom out, this is just noise for now, and pullbacks are still holding within a broader bullish sentiment.  So what is actually on the agenda for the next three weeks? 

Well, we hit it off with Powell testifying before congress but this is a special one. The way the latest data has come out of the US, traders across the world won’t be listening to what Powell says, instead, they will be listening to what he DOESN’T say. Big difference.  

As long as Powell does NOT hint or signal the possibility of a 50bp rate hike, risk assets will most likely rally into Friday's jobs report. Comments along the lines of ”hiking for longer”-the theme will not be enough at this point in time.  

On the other hand, if Powell actually does make such hints, we are going lower. Much lower. Across all risk asset classes. It would quite frankly be a bloodbath.  

Then, the week following, will be the start of the so-called” blackout period”, in which  FED speakers aren’t allowed to comment on the policy until after the next rate meeting. As such, we pretty much only have a small window of 14 hours on Friday between NFP and equity market close, for FED speakers to make any real comments.  

PCM's popular market analysis by Timothy Hellberg