Bitcoin charged to new highs on Tuesday, but then retreated about 14%, sending a scare into the market. Since then the price has stabilized. I think the two most important questions are will bitcoin retest the $69,000 high and ultimately blast through? And if so, what are the catalysts to justify the outlook for higher prices? I’ve been following the bitcoin story for 10 years now, opened my first Coinbase account back in 2014 and bought bitcoin at $330. No, I don’t still have them. I’ve followed and traded it since then and also selected bitcoin as my top pick in the 2018 CNBC Stock Draft . I currently hold the Grayscale Bitcoin Trust ETF (GBTC) in our Active Opportunities Portfolio at TradingAnalysis.com and I am looking to add to the position as I’ll outline below. The three main drivers of bitcoin to all-time highs I believe are as follows: The micro situation specific to bitcoin called “halving” Bitcoin being the flagship so to speak of our journey into the digital age The global macro backdrop The halving The bitcoin “halving” cycle is an award schedule of sorts for those who mine bitcoin, which is actually validating transactions and creating new blocks on the blockchain. When miners accomplish this, they are awarded bitcoin, but the amount of coins rewarded is cut in half approximately every four years. Following the halving cycle there will be less supply of bitcoin on the market as miners take profits to fund their operations. There is precedent to show that bitcoin generally rallies before and following the halving event. But I think there’s more to it and it has to do with the historic move in AI and semiconductor stocks like Nvidia. Contributing to the gains is bitcoin’s association as the flagship in our journey into the digital / exponential age. Bitcoin as tech barometer Looking at a weekly chart overlay of the VanEck Semiconductor ETF (SMH) and bitcoin futures, we can see a clear correlation over the past six years. One technical note to keep in mind is SMH exceeded all-time highs by a considerable margin, whereas BTC is just now breaching through it. Are tech stocks — like semiconductors — acting as a leading indicator for bitcoin, signaling a sustained move through the highs? Or, is bitcoin about to reverse, signaling to the Nasdaq that it may have overshot? I think it’s the former. To add another macro layer to this discussion, we need to bring in U.S. bond yields and the U.S. dollar. Macro backdrop With Fed Chair Jerome Powell beginning his 2-day testimony to the House Financial Services Committee there will likely be political pressure on Powell to cut rates, despite the market consensus that rate reductions will be limited this year. As the market digested the outlook recently, the 10-year Treasury yield has surged recently, driving the U.S. dollar higher along with it. Higher rates and a higher dollar put downward pressure on U.S. tech stocks and bitcoin due to their positive correlation demonstrated above. However, I think the market has mostly digested the outlook that the Fed is likely on hold and the market has responded surprisingly well. As a result, tech stocks and Bitcoin are rallying. What the charts say Turning to the technicals of bitcoin, I’ve found that it is best tracked using the Elliott Wave Principle. The Wave Principle accounts for and catalogs different degrees of trends and corrections, as well as projected starting and stopping points for those trends and corrections. Beginning in Sept ’23, bitcoin mounted a 78% rally before consolidating below the key $50,000 technical resistance before ultimately breaking through in February of ’24. That level is now considered support. Using Elliott Wave for a typical ‘3rd-wave’ projection that is often the strongest and most powerful wave, the minimum upside target is another 78% rally, which by coincidence or not lines up with the former all-time highs of approximately $68,500. It’s no surprise that we sold off a bit Tuesday from this incredibly significant confluence of technical resistance levels. As mentioned, bitcoin and the tech stocks gathered themselves following Tuesday’s sell-off and I think are mounting another attack to break free to higher levels. How much higher? The typical third-wave target is a 161.8% projection of the percent distance traveled in the first wave. That brings us to our 2024 target of $98,000. As mentioned above we’re holding GBTC and will look to add to the position once bitcoin breaks above $69,000. We’ll trail our stop loss to just below the March 5th low of $53.15 DISCLOSURES: Gordon owns bitcoin and GBTC personally and in his research business TradingAnalysis.com. 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. 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This story originally appeared on CNBC
