A Coming Crisis

Even if we avoid an economic crisis, is Bitcoin potentially facing an identity crisis?

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A Coming Crisis overview:

• A series of unique Bitcoin charts comparing the Fed’s Reverse Repo Facility data

• High timeframe Bitcoin technicals are teetering on the line between bearish and bullish

• Stacking up the stock market and Gold charts alongside Bitcoin

• Comparing Bitcoin’s correlation with tech stocks, Gold and Ethereum – the results are shocking

• Bitcoin’s identity crisis: A tech stock or digital Gold? Time to find out

• Is a major economic crisis on the horizon? Discover what Gold says

• The end of Bitcoin… for now?

Fear the (Reverse) Repo

The Federal Reserve’s reverse repo facility is a tool it uses to manage liquidity in the financial system. When banks and money market funds park cash in the Fed’s reverse repo facility, it is essentially removing dollars (liquidity) from circulation – dollars that would normally be available to risk assets like stocks and Bitcoin. A rising reverse repo balance suggests that liquidity could actually be tightening, despite other measures suggesting the opposite is happening in the market.

The above chart idea was brought to my attention by analyst bitsofwealth on X (give them a follow here), and I thought it was compelling enough to feature in this week’s newsletter. At the top, we have Bitcoin since 2021. On the bottom, it is the Federal Reserve’s reverse repo facility (RRPONTSYD on TradingView).

Upon closer examination, reverse repo rising prompted the first major top in 2021. Then when reverse repo peaked and began declining, Bitcoin began its bull market. Reverse repo figures just started rising again and made its first higher low and higher highs, suggesting a possible change in trend.

Flipping Bitcoin upside-down and we can see that there’s an almost near-perfect correlation since the 2023 bottom in BTCUSD. There was a clear rolling over period for the reverse repo when Bitcoin bottomed, and it is once again rolling over in the opposite direction. Will Bitcoin continue to follow this metric?

Teetering Technicals

I want to continue to stress, that – when taken at a whole – technicals still lean bearish. But given the way March closed, there is at least some potential for Bitcoin to resume a bullish trend. If April can close above $94,000, it could be enough to keep the bull run going. A close above $102,000 almost guarantees it. But if for some reason Bitcoin closes at new lows below $80,000, several bearish signals will confirm and it greatly increases the likelihood of entering a larger corrective phase.

Currently, the most dominant signal on the chart is the Bearish Engulfing (red arrow). If a valid signal, Bitcoin should see more downside confirmation by the end of May. The idea that Bitcoin can turn this around is based on the Doji candlestick formed in March. Doji represent indecision, and this tells us that both bears and bulls were confused as to what’s going to happen next. After indecision, a decision is usually made. If bulls can fully engulf the Bearish Engulfing and form a Morning Star pattern instead (similar to the boxes), this’ll be a sign of a trend reversal back into a bull run. A larger black candle in April completely negates this possibility and confirms the Bearish Engulfing candle (and possibly a bear market).

To show you how critical April is, we need to look no further than the logarithmic MACD on the monthly timeframe. April opened with a bearish crossover and red tick on the histogram. As you can plainly see, this signal started the last bear market. This is currently an unconfirmed signal, however.

MACD stands for Moving Average Convergence/Divergence indicator. Signals are based off when the two Moving Averages converge or diverge. Converging lines can lead to the crossover from the previous chart. However, when a crossover fails and the two lines begin to diverge instead, it is a strong signal in the opposite direction. This means if Bitcoin can pull off the Morning Star reversal it will also avoid this bearish crossover from confirming. The chart above shows that bulls have already uncrossed this bearish crossover. Bulls must push this higher, or else the same bearish crossover will open again on the chart in May. It will take serious strength to dramatically change momentum back to the upside now that it has been turning over – but it isn’t impossible.