Opening bell report highlights:

A sharp drop on Monday sent Bitcoin plunging below $50k. Although it is now trading about 10% higher than its low this week, the volatility can make investors hesitant. Despite a rally in US markets, ETF investors sold off around 3k BTC. With upcoming elections, it’s worth noting that in the last two elections, Bitcoin has increased an average of 19% between August and November. Additionally, key trendlines are important to consider, with one acting as resistance and another potentially providing support slightly above the $40k mark should markets tumble.

Bitcoin

Mid-term outlook positive for Bitcoin, short-term pinned to global market confidence.

What started as ‘Black Monday’ turned greyish as US markets rallied after Asian markets saw their worst 2-day drop in history, now nearly recovered the very next day.

Bitcoin took a major hit, dropping over 20% from last week’s close to this week’s open for US market participants. Nervous investors watched as Bitcoin closed 8.3% higher after US markets opened.

Safe-haven assets are in demand amid Middle East geopolitics, UK politics, US elections, US economic data, and a Japanese Central Bank pivot.

Additionally, crypto faced major market makers dumping, Mt Gox repayments, and Bitcoin coming off $70k last week—a 30% increase from the July low after the German government sold 40k Bitcoins. To some extent, a drop was inevitable as investors took profits.

What happens next depends on perspective. From a short-term day-to-day view, many of the above issues may come into play. The volatility seen this week gives mixed results as we head into the US election 13 weeks from today (see table).

Bitcoin 3-month returns after largest downside weeks during a bull market

However, if volatility hasn’t rattled investors, the August to November outlook has historically been positive, with an 19% average return during election years (see chart).

Bitcoin August to November % change

US elections

1980: High inflation, high interest rates, rising unemployment, record stock market.

If history teaches us anything, it’s that patterns often repeat. While the last decade has seen US Presidential candidates become more influential through social media and increased accessibility, voters historically prioritize their economic situation when casting their votes.

Five major economic crises have started or persisted into an election year. Notably, the Democrats, often associated with increased social spending, have reclaimed the presidency from Republicans in four out of five times (see table).

The exception was the 1980 election, which shares some unsettling similarities with this year’s electoral climate. The Republicans took office after voters dealt with high inflation, record high interest rates, increasing unemployment, and slowing GDP growth. Meanwhile, stock markets were trading at all-time highs.

Whether we are currently in a recession is a subject of debate, but much like then, terms like “recession” and “stagflation” are being frequently mentioned.

Regarding Bitcoin, Copper has discussed the potential of the ‘Elephant Trade,’ which would likely see the US Dollar decline in value under a Republican Oval Office, potentially benefiting the cryptocurrency (See OB#22).

This held true between 2016 and 2020 when Democrats won.

However, there’s a caveat: while this assessment considers historical trends, we must also consider the historical strength of the US Dollar during the same periods.

Although Republicans won back-to-back elections in 1980 and 1984, the strength of the Dollar Index (DXY) surged, reaching more than double its previous value before returning to the same levels when taking power from the Democrats

Such a scenario wouldn’t be favorable for Bitcoin post-election – should everything we’ve mentioned really line up and repeat itself.

US unemployment rate %

US federal funds rate %

US inflation rate %

Post 1980 elections DXY: US dollar index surges 70% between 1981-1985

Onchain

Long-term onchain holdings recover to levels above Bitcoin’s all-time-high.

Although on-chain data reliant on heuristics isn’t always 100% accurate, it is useful for establishing trends. Long-term holders have sold over 625k Bitcoin since the beginning of the year when ETFs started trading and Bitcoin’s price peaked in March. However, this trend has reversed, and on-chain holdings attributed to long-term investors are now 25k Bitcoin above the price peak. Meanwhile, short-term holders are now holding 285k Bitcoin less compared to around the same time.

Source: Glassnode

Technical analysis

Bitcoin long-term resistance and support trendlines in play.

Last week, we noted that Bitcoin was approaching a significant long-term trendline. This trendline served as resistance around the $70k level and is now equidistant from another long-term support trendline. If this trendline functions as support, as it has in past years, Bitcoin’s price could potentially drop to as low as $41k. While this doesn’t guarantee a drop to that level, it underscores a crucial support line between the 2015 low and the FTX crash in 2022. In 2023, this lower trendline provided key support before a major rally.

Bitcoin ETF AUM & flows

Bitcoin flows start week with outflows as investors shed 3k coins.

Sources : Farside

Sources : Farside

Economic calendar

Key events this week: FED balance sheet, initial jobless claims.

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