Head & Shoulders Fears

Key Takeaways

Uncertainty around upcoming policies brings a lack of price direction
Yields, US Dollar strength and rising oil prices are acting as headwinds
A near term bearish chart pattern has emerged on many risk assets

Digital Asset Commentary

Price action for BTC and other digital assets over the past week would likely be defined as volatile chop, with both bulls and bears disappointed at the lack of continuation outside of the current range. Potential upcoming catalysts for bullish price action include the announcement of a Strategic Bitcoin Reserve in the first few days of Trump’s presidency. Yields, US dollar strength and rising Oil prices should all act as a headwind for risk assets. Runaway yields, such as the 10-year above 5.0%, could lead to intervention by the US government which would be liquidity positive. However, frontrunning such an event before the liquidity injection occurs can potentially end in disappointment and patience is more favorable in the current environment. Ultimately, the state of macro for the next year lies in the hands of the new administration.

The looming Head and Shoulders (H&S) chart pattern on BTC, along with bearish trend metrics, are suggestive of a near term weakness in momentum with the potential for a pullback in the $80k region. As alts are mostly synthetic expressions of BTC direction, alts should not only follow BTC lower but in an amplified manner. Both the yearly pivot and 20 week moving average for BTC also sits near the 80k level, adding to potential support confluence. Not only has BTC momentum begun to lean negative, but so has the S&P 500, with a similar H&S bearish reversal setup. In bearish market conditions, risk markets typically correlate towards 1, hinting at both BTC and the S&P 500 breaking down in a similar time frame throughout the quarter.

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