Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.

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TLDR:

• Bitcoin has rebounded from $60k to the $68k-$71k range, but we view this as a relief rally within a broader bottoming process.
• Key data this week: delayed Payrolls and Unemployment (Wednesday) and Inflation (Friday) both could shift rate cut expectations forward from June to April.
• Current setup mirrors mid-2022: price capitulation largely complete, but time capitulation has not yet occurred. We expect a rounding bottom over the coming months, not a V-shaped reversal.
• Key risks: US-Iran escalation and a potential Yen carry trade unwind should Dollar/Yen break 160.
• Strategy unchanged: laddered bids between $50k-$63k with 80%, and 20% remaining in cash on the sidelines for now.

Topics covered:

• This Week's Data.
• Current Market Stance?
• Potential Risks in the Short-Term?
• Cryptonary's Take.

After falling to $60k last week, Bitcoin has rebounded and it's now trading in a tight range between $68k and $71k.

This Week's Data:

This week, there are two key economic data releases: labour market data (Wednesday) and inflation data (Friday). This labour market data is the delayed Payrolls and Unemployment Rate data that was due out last Friday, but wasn't released due to the government shutdown - which has now reopened.

For context, last week we did get some labour market data: Job Openings, Challenger Job Cuts and ADP Employment Change.

Job Openings saw a large decrease from 6.9m, with a consensus of 7.2, but coming in at 6.5m. The number of open job advertisements is falling. Meanwhile, Challenger Job Cuts came in at 108k, well above the prior month's 35k number. And ADP Employment Change came in at 22k, well below the 48k consensus number. All of this points to a weakening labour market, which is what Governor Chris Waller pointed to in his dissent (for a rate cut) at the late-January Fed meeting.

The consensus this Wednesday is for a 70k Payrolls print, with the Unemployment Rate expected to remain unchanged at 4.4%. Should we see these numbers, they would signal a still-resilient labour market, and rate cuts would remain pushed out to mid-year. However, should we see weaker numbers, then risk assets could see some upside, assuming the weakness in the jobs numbers isn't too weak. Essentially, the market wants data that supports more rate cuts and sooner, but it doesn't want to see the labour market deteriorate too much, otherwise that would be recessionary and risk assets would sell off more materially.

Inflation on the other hand (to be released on Friday), is expected to show declines in both the Core measure and the Headline number. The forecast is for a 2.5% Core YoY print, and a 2.4% YoY Headline print. Markets would celebrate this should we see it, as it would mean that inflation is trending down towards the Fed's 2.0% mandated target and they can focus on the weakening labour market. This would result in more rate cuts and for the first to likely be sooner than June.

Currently, the next rate cut is priced to happen at the June meeting, with March showing an 84% chance of a continued pause, and late-April showing a 67% chance of a pause. In our view, we expect these odds to decrease by the end of this week once both the labour market and inflation data numbers are out i.e., we may see a shift for the first cut to become priced to happen in April rather than June.

Current Market Stance?

Last week, the Bitcoin market saw large Spot selling drive price down, we can see this in the Spot Cumulative Volume Delta (below chart). The breakdown from $75k to $60k also saw a significant flushing out of Open Interest (leverage), with Funding Rates now just fluctuating near neutral.

Bitcoin Mechanics 4hr Chart:

Alongside this, massive realised losses were taken, with losses similar to that of June 2022 when BTC collapsed by 44% in a short period of time.

Net Realised Losses hitting similar levels to June 2022:

Whilst the Fear & Greed index plunged to lows not seen since... mid-2022. Note, mid-2022 was 222 days into a 366 day bear market.

Fear & Greed Index at new lows:

In our view, we believe today's market is in a similar position to June 2022:

• We've seen a more than 50% drawdown from price all-time highs.
• The bulk of the price drawdown appears complete, but time capitulation has not yet occurred.
• Bottoms are a process, and we expect a 'rounding' bottom formation rather than a 'V-reversal'; this is not a Covid-style scenario where a rapid liquidity injection produces a V-shaped reversal.
• The 3D RSI has probably bottomed, but bottoms take time, so we expect that price hasn't yet bottomed, but a new price low won't generate a new RSI low = bullish divergence.
• Retail participation has declined significantly.

BTC's bottoming process, similar to mid-2022:

Ultimately, it seems that enough capitulation was had that $60k was a local low, and therefore we may see a potential relief rally in the short-term. Although arguably, a fair chunk of that has already happened in the rebound from $60k to $71k.

But, when we look at the underlying drivers of price, it remains our base case that BTC visits the $50k-$60k zone - there are too many key cost basis levels there, and for now, there isn't sufficient reason for institutional buyers to meaningfully step in before $50k-$60k is retested. However, this may take 1-3 more months to play out, and we expect price to be range-bound between $60k-$78k in the meantime.

Potential Risks in the Short-Term?

Over the coming weeks, there are several potential risks that we're watching:

1. Potential escalating tensions between Iran and the US. Should Oil breakout to the upside, that would potentially precede a meaningful escalation. Should a strike happen, it's likely risk assets would drastically pull back.

2. Dollar/Yen breaking above 160 due to increasing fiscal deficits. This may result in a 'Yen carry trade' unwind, which has negatively impacted risk assets in the past. We don't expect this to be hugely impactful as a lot of leverage has been taken out of this trade already.

Cryptonary's Take:

Bitcoin has bounced from $60k to $71k, with price now resting at $68k. However, we see this as a relief rally that may go higher, or stall it in the low $70ks, but we're not betting on substantial upside here and we prefer to remain on the sidelines.

Our strategy: we maintain that the market is in a risk-off environment, but that prices have come down close to deep value areas. Therefore, we're layering bids between $50k to $63k with 80% of our cash, with a view to accumulating for the long-term.

Peace!