Mike McGlone, a senior commodity strategist at Bloomberg, has highlighted Bitcoin’s (BTC) historical patterns of boom and bust, which are closely tied to liquidity. According to McGlone, Bitcoin’s current price level of around $27,000 may be at risk of reversion, considering that it was only $7,000 at the end of 2019 before the massive liquidity pump in 2020.
Bitcoin Faces Unprecedented Risk?
McGlone’s analysis also indicates that Bitcoin’s downward trajectory, as demonstrated by its 52-week moving average, contrasts with the upward trend it experienced at the onset of the pandemic. This suggests that the cryptocurrency is susceptible to booms when liquidity is abundant but vulnerable to busts when liquidity is removed. As such, McGlone recommends respecting the down-sloping 52-week mean in assessing Bitcoin’s direction bias.
That the #FederalReserve has kept hiking rates in 1H despite a bank run, plunging commodities and producer prices may portend deflation potential for risk assets. Peaking #Bitcoin and #copper vs. rallying #equitymarkets appears as an unsustainable trajectory. pic.twitter.com/deEhESQ62u
— Mike McGlone (@mikemcglone11) May 22, 2023
Despite the recent bank run, the Federal Reserve (Fed) has tightened twice, which may indicate the central bank’s tenacity, McGlone points out that slumping copper and cryptocurrencies, including Bitcoin, are paying heed to the warning, which contrasts notably with the resilient stock market.
Furthermore, in a recent interview, McGlone warned that Bitcoin could potentially experience a significant decline and return to its 2019 rally starting point of around $7,000. McGlone cites the drying up of liquidity and rising interest rates as key factors that could lead to a mean reversion for Bitcoin.
While acknowledging the potential for Bitcoin to rebound, McGlone notes that the cryptocurrency has yet to exhibit strong divergence from other assets and suggests that investors should wait for a significant drop in the S&P 500 and copper before considering a long position in Bitcoin.
Looking at the facts of Bitcoin, McGlone notes that before the massive liquidity pump in 2020, the cryptocurrency’s average price in 2019 was around $7,000. It subsequently surged to $60,000 before settling at its current level of $27,000. While Bitcoin is still trading at four times its 2019 average price, McGlone cautions that the risk of mean reversion remains and suggests that investors should exercise caution in the current market environment.
BTC’s ABC Pattern Could Signal Consolidation And Potential For Upside
Crypto analyst Michael Van de Poppe has assessed Bitcoin’s recent price action and suggests that the ABC pattern could technically be complete for BTC. The C wave went lower than the initial A wave, and they are approximately the same length from a price drop perspective. The lowest wick was only $500 off the base case, and the price seems to have entered consolidation just as expected, albeit higher.
Van de Poppe notes that C waves having approximately the same length as the A wave is uncommon, and sometimes the C wave can go much deeper than the A wave. However, at this point, it is worth considering that the bottom of the C wave may be in. If another drop is lower, it should happen in the first half of this week.
If the price breaks above $27,700 or even flips the descending trendline, that could be early signs that consolidation is ending, and Bitcoin’s price is ready for continuation upwards. The ultimate level to flip for higher conviction is $29,000, and RSI is above 50.
On the other hand, if there is a daily candle close below $16,700, another leg down becomes more likely, and Van de Poppe’s target for that would still be $24,000 – $25,3000. Van de Poppe emphasizes that both scenarios are bullish over the medium timeframe (months) as long as Bitcoin’s price does not drop and stays under $22,000 in a sustained manner.
Featured image from iStock, chart from TradingView.com