Bitcoin has pulled back in recent weeks following the announcement that creditors to the collapsed Mt Gox exchange will be returned approximately $9 billion of bitcoin and the fear is that supply will hit the market. That pullback has materialized and according to our Elliott Wave analysis of the bitcoin chart, support has possibly been formed in the zone of $59k – $49k. If successfully defended, this sets up a third attempt to break through the formidable $65k – $73k resistance zone. In fact, we just added a 2% holding of the new iShares Bitcoin Trust (IBIT) to our Tactical Alpha Growth portfolio at Inside Edge Capital. We are bullish and expect to see the underlying break the all-time highs and move into the $105k – $109k target zone in 2024. Setting aside the micro-headwind of the possible bitcoin overhead supply, we have a potential macro-tailwind that could help accelerate the rally. Looking at the 3-chart overlay below you’ll find bitcoin, gold, and US 10-year yields since 2020. If you look closely at the overlay you’ll observe two things on the chart that I find very helpful as a stock investor to help gauge the macro environment. First is that gold and Bitcoin (blue and orange) have a very close positive correlation. ‘Heavy gold’ and ‘digital gold’ trading together?! Isn’t that like dogs and cats living together? We believe it has to do more with the market dynamic that both are currently inversely correlated to US bond yields, which is the second helpful observation. If you examine the chart closely you’ll see that the US 10 yr yields in black trade with a loose inverse correlation to Bitcoin and gold. To the degree that inflation is expected to be with us longer than most think and the Fed is not likely to ease rates anytime soon, recent market activity has shown us that it negatively impacts Bitcoin and gold. Persistent inflation and higher rates also negatively impacts the stock markets. Pulling it all together higher rates have a negative impact on all three; bitcoin, gold, and the stock market, which are all showing a positive relationship in recent months. Incredibly, if you are bullish the stock market you want both Bitcoin and gold to push higher that should see lower US interest rates as the first Fed rate nears. To the extent of how much Bitcoin has rallied relative to gold since the 2022 lows, it’s no contest. Gold is +45% compared to bitcoin’s +280% rally. To further underline bitcoin’s outperformance, take a look at a weekly ratio chart of bitcoin/gold going back to 2020. Using the same school of market analysis we see that bitcoin/gold has pulled back into support (gold out-performed Bitcoin in the Mt Gox events), but is possibly finding support ready to reassert its dominance over gold. In summary, being very bullish on the stock market, I would like to see bitcoin and gold move higher along with lower US yields. But Ideally we see the gains in bitcoin (and our new IBIT position) far outperform our holdings in our gold mining stocks. -Todd Gordon, founder of Inside Edge Capital, LLC DISCLOSURES: (Gordon owns IBIT personally and in his wealth management company Inside Edge Capital. Charts shown are MotiveWave) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
