Bitcoin's Current Problem

Investors,

I see one of two scenarios happening from here.

Everyone and their mother was talking about Bitcoin’s relative strength on Friday.

In fact, the digital asset performed extraordinarily well during this week’s turmoil.

These were the week over week results, ending on Friday’s session:

• Dow Jones $DJX -7.86%

• S&P 500 $SPX -9.07%

• Nasdaq-100 $NDX -9.77%

• Russell 2000 $RUT -9.70%

• Bitcoin $BTCUSD -0.6%

One of these is not like the others.

So what happens next?

Like I said, I see one of two scenarios…

Scenario 1: Relative strength pays off and Bitcoin outperforms to the upside while the stock market attempts to regain upside momentum. In this scenario, we could reasonably expect to see Bitcoin generate 2-4x the upside returns of the S&P 500, but this relies on a “big if”, with risk assets catching a bid on a broad-based scale.

Scenario 2: Relative strength fades and Bitcoin converges towards equities to the downside. In this scenario, we’d expect to see risk appetite deteriorate even further and ripple into Bitcoin and the broader crypto ecosystem.

At the present moment, while I think both are possible, the 2nd scenario is more plausible based on current market dynamics (though I’m rooting for the 1st scenario).

Think about it…

Do we really think that this correlation between BTC & software stocks (IGV) is over?

Do we really think that their lockstep relationship since 2020 is going to dissipate?

I’m seeing a lot of commentary, particularly from hardcore Bitcoiners, that BTC is finally acting like a safe-haven asset amidst market uncertainty and trade policy. They claim that Bitcoin is de-correlating because investors finally understand that Bitcoin is sound money and a solution for misguided government policies & uncertainty.

I disagree, even though I understand the narrative better than most.

Why?

Because I simply don’t think that this decoupling will last.

As someone who fundamentally recognizes and understands Bitcoin’s long-term investment thesis (there’s a reason that more than 70% of my net worth is held in BTC), I don’t expect Bitcoin to consistently act as a safe-haven asset in this environment.

I expect to see Bitcoin (which is still a risk asset at this stage of the adoption curve) move in the same direction as U.S. stocks in the coming weeks & months ahead, as I outlined above

The investors who believe that Bitcoin has entered a new era will be forced to confront a harsh reality in the near future when BTC regains its correlation — when that happens, will they come out and say that Bitcoin is no longer a safe-haven and risk-off asset? When they inevitably become correlated again, will they say that Bitcoin is failing as an alternative, sound-money asset?

If they’re going to be consistent, as they should, then they would have to concede that Bitcoin is failing to serve as sound money once it regains its correlation with equities…

The fact of the matter is that temporary price behavior does not invalidate the long-term behavior and intermarket correlations.

BTC has a 79% correlation coefficient with the S&P 500 over the past 60 (and 90) days.

Again, that’s just a fact.

Unfortunately, in an environment where I’m outright bearish on equities and defensive on Bitcoin, there’s a higher probability for Bitcoin to “catch up” to equities to the downside in the weeks ahead.

As we continue to examine the objective facts in the current market environment, Bitcoin bulls must confront the following data:

• Bitcoin is trading below its 21, 55, 100, and 200-day moving averages

• Each of these moving averages has a downward slope

• Bitcoin is getting rejected on these moving averages over the past week

• Bitcoin is unable to break (and stay) above its 200-day moving average cloud

• Bitcoin is trading below its short-term holder realized price

• The short-term holder realized price has a downward slope

• Bitcoin is trading below its AVWAP from the August 2024 lows

• Bitcoin is trading below its daily Ichimoku Cloud indicator

• Bitcoin’s bullish RSI divergence on daily candles isn’t working (yet?)

• Bitcoin’s daily supertrend indicator is negative

• Bitcoin’s daily parabolic SAR is negative

• Bitcoin’s daily Heikin Ashi candle is red

• Bitcoin’s weekly Heikin Ashi candle is red

• Bitcoin’s two-week Heikin Ashi candle is red

• Bitcoin’s monthly Heikin Ashi candle is red

While some bullish datapoints still remain, every single one of these objective truths is emblematic of downtrends and/or bear markets.

You might not like to hear this.

I don’t like to say this.

But this is the truth.

As investors, we have to make a choice about whether we’re going to ignore objective truth or think critically about what these truths mean for our portfolios and how we might adjust our expectations until these conditions improve.

The beauty of all of the indicators and datapoints that I referenced above is that they are dynamic. As such, we can also be dynamic and shift our bias if/when the indicators flip into a bullish stance.

Maybe that comes next week.

Maybe that comes next month.

Maybe that comes next quarter.

We don’t know… but we know exactly what to look for!

I just happen to think that’s exciting and I’ll do my best to navigate an ever-uncertain market by using objective truths to my advantage, rather than digging my head in the sand and pretending we live in an alternate reality where these facts don’t matter.

Best,

Caleb Franzen,
Founder of Cubic Analytics

---

This was a free edition of Cubic Analytics, a publication that I write independently and send out to 13,300+ investors every Saturday. Feel free to share this post!

To support my work as an independent analyst and access even more exclusive & in-depth research on the markets, consider upgrading to a premium membership with either a monthly or annual plan using the link below:

There are currently 1,030+ investors who are on a premium plan, accessing the exclusive alpha and benefits that I share with them regarding the stock market, Bitcoin, and my own personal portfolio.

---

DISCLAIMER:

This report expresses the views of the author as of the date it was published, and are subject to change without notice. The author believes that the information, data, and charts contained within this report are accurate, but cannot guarantee the accuracy of such information.

The investment thesis, security analysis, risk appetite, and time frames expressed above are strictly those of the author and are not intended to be interpreted as financial advice. As such, market views covered in this publication are not to be considered investment advice and should be regarded as information only. The mention, discussion, and/or analysis of individual securities is not a solicitation or recommendation to buy, sell, or hold said security.

Each investor is responsible to conduct their own due diligence and to understand the risks associated with any information that is reviewed. The information contained herein does not constitute and shouldn’t be construed as a solicitation of advisory services. Consult a registered financial advisor and/or certified financial planner before making any investment decisions.

Each investor is responsible to understand the investment risks of the market & individual securities, which is subjective and will also vary in terms of magnitude and duration.