Monday Market Outlook #13
The Double Bubble cycle seems to be taking physical form right before our eyes as Bitcoin broke the $50,000 dollar 'round-number' resistance level late Sunday night.
In this week's Monday Market Outlook we go over previous cycles, monetary policy, Jackson Hole, technical analysis and more.
The Economic Outlook
"The Economic Outlook," a speech Fed chairman Jerome Powell will be giving later this week to a virtual audience about their upcoming decisions and latest economic models has stalled most market movers this past week. The DJIA down 1.1%, Nasdaq down .7% and the S&P down .6%. Back in July the FOMC stated they would begin talking about tapering their $120-billion dollar a month bond-buying spree which started in mid-2020.
This puts anxiety in the market as a tapering of net bond purchases could result in a slowing of the economy. However, last Friday Dallas Federal Reserve President Robert Kaplan – who is a proponent of Fed tapering – said he is willing to adjust his view on tapering its asset-purchase program if the delta-variant continues to persist. This brings confidence that the Jackson Hole symposium will just be a hand-off to the December meeting as we go into 2022.
The S&P 500 reflects that this morning with a 444.91 open after a Friday close of 443.53.
Oil and tech are also up as Beijing posts zero new Covid cases. Asian markets rebounding hard off the same news as well after a 3-week 20% sell-off as the Shanghai SE Composite Index is up +38.78 (1.14%). European markets also doing well as ultra-doveish ECB continues stimulus and trader continue buying the dip.
Overall, the Jackson Hole meeting is being met with bullish sentiment as delta-variant looms over tapering-talk. Don't expect any traction on tapering.
As macro looks to be speculatively bullish leading into Jackson Hole, let's look at the most speculatively bullish asset on the planet.
In this chart you can see the amount of resistance levels Bitcoin needed to grind through to get from it's $40,000 dollar breakout to $50,000. There is a reason a lot of people said it would be our biggest battle, and we only have one last line of resistance before clear skies to $56,500. The S/R was set in mid-Feb and mid-March at $50,400.
If we can hold our current +50k position, which is also above the major moving averages (50/200), I think we start to see accelerated growth towards all time highs. For example look at the how the price action touches the upper band of the green 21-week EMA cloud (white arrows). The 21-week EMA is set around $42k and has been a historical broader bull run support level. However, the EMA cloud has been a good representation of bullish momentum accelerating after a breakout (yellow arrow). For example:
Look what happened back in October 2020 when Bitcoin broke through the EMA cloud and respected it on it's climb towards 64k. As momentum began to die out however you can see price action dipping deeper into the cloud until finally breaking down like in mid-May. We could be seeing some momentum building up in a huge way right now.
One thing to note as well is the MacD just flipped bullish. The last time MacD flipped bullish was back in October 2020 as well, if price rhymes, we are in for a bullish few months.
The term supply shock has been circulating around for awhile and I wanted to address it here. Bitcoin supply has been steadily decreasing as hodler take coins out of circulation for the purpose of holding for either appreciation or other secondary market activities (lending, market provision etc). Currently the liquid supply of Bitcoin is 22%. This means that only 22% of all minted Bitcoin is available for buying and/or selling. The other 78% is off the market, and that number is going up.
As you can see, the Illiquid Supply Shock Ratio (blue line) crossed over the Bitcoin price (black line) in mid-July and is on the rise again. Let's look at what happens when the ILSS ratio is above the Bitcoin price historically:
In 2017, when the IILS ratio (blue line) was above the price of Bitcoin, the value of Bitcoin soared, and inversely when below, the value tanked. Supply is leaving circulation and value must increase as demand only seems to be increasing.
Visa buying CryptoPunks, further traction on Grayscale ETF, Coinbase adding BTC to balance sheet etc. These are example of long term traditional investments that coincide perfectly with this very interesting illustration on the Bitcoin NUPL chart:
This is the famous NUPL chart of Bitcoin which we've discussed numerous times before, only now you can see that it is within a decade-long ascending wedge. This could literally be the chart that represents the supercycle better than any other in my opinion. Now, this isnt a price action chart, this chart represents the Net Unrealized Profit/Loss of Bitcoin. In other words it tracks how much net profit or loss an entity is in for a certain period of time.
This means that a break out of this chart would mean that more and more entities choose to HODL Bitcoin for the long term rather than trade it. As I said above, the more and more institutional HODL'ing that takes place, the more likely we see a breakout. Tesla, SpaceX, MicroStrategy, Coinbase, Galaxy Digital, Square, Voyager, Marathon and many more to come.
This bull run has shown me many times over that my predictions are more often times right but are stretched out over too much time and that trends happen much quicker than anticipated. I previously thought this bull run leaked into 2022 but now I am not so sure.
We could very well just blow up this year and repeat the 4-year cycle again if this acceleration phenomenon I've noticed continues. A lot of parameters need to filled for that to happen which is why I think it is unlikely and we do indeed run this into 2022.
However, that would mean Bitcoin needs to reset in the high 40's again or range in the 50's for a few months before making another run at all time highs. Something I am more than patient for.