Is It Time to Buy or Sell Bitcoin? ARK Invest Evaluates All Possibilities!

• In their latest monthly report titled “The Bitcoin Monthly: Battling Resistance Around the Bitcoin On-Chain Average,” ARK Invest provides a comprehensive analysis of the current market landscape.
• ARK’s analysis suggests that the deeper the pullback, the higher the likelihood that Bitcoin holders may exit the market, potentially setting the stage for a stronger bull market.
• August was a challenging month for Bitcoin as its price dropped by 5.4%, settling below the $27,580 200-week moving average. This marked the first time since June 2023 that it fell below this threshold.

ARK Invest evaluates the current outlook for Bitcoin in their monthly report, presenting bullish, bearish, and neutral scenarios.

Is It Time to Buy Bitcoin? Positive Scenarios!

In their monthly report titled “The Bitcoin Monthly: Battling Resistance Around the Bitcoin On-Chain Average,” ARK Invest provides a comprehensive analysis of the current market landscape. The report categorizes its findings into bullish, neutral, and bearish perspectives, offering a holistic view of Bitcoin’s current and potential future status. Let’s first take a look at the bullish scenarios:

Grayscale Spot ETF and GBTC NAV Discount: On August 29th, the U.S. Federal Appeals Court made a significant decision. The court ruled that the U.S. Securities and Exchange Commission (SEC) should reconsider its previous decision to reject Grayscale Bitcoin Trust’s (GBTC) application to convert to a spot ETF. This legal development reduced GBTC’s NAV discount from -24% to -18% on the same day, indicating increased market optimism. By the end of August, GBTC had a -20.6% discount according to NAV.

Bitcoin’s Overall Cost Basis Improvement: Bitcoin’s realized capitalization, a metric measuring BTC’s total cost basis covering both primary (miners) and secondary (investors) markets, experienced a 19% drawdown between the fourth quarter of 2022 and the first quarter of 2023, the largest drop since 2012. This drawdown serves as a barometer of capital outflows from the network.

ARK’s analysis suggests that the deeper the pullback, the higher the likelihood that Bitcoin holders may exit the market, potentially setting the stage for a stronger bull market. Realized capitalization increased from an all-time high in 2021 to 15.6% in the eight months following the FTX crash in November 2022, indicating capital inflows.

Collapse of Open Positions in Futures: On August 17th, Bitcoin futures were rapidly liquidated, with a swift 21.7% deleveraging, interpreted by ARK Invest as a “cathartic sentiment correction.”

Neutral Scenarios for Bitcoin

Bitcoin Price and the 200-Week Moving Average: August proved to be a challenging month for Bitcoin as its price fell by 5.4%, dropping below the $27,580 200-week moving average. This marked the first time since June 2023. However, ARK Invest suggests that Bitcoin needs to find significant support, potentially around the $20,300 realized price.

Bitcoin On-Chain Average Resistance: This metric, referred to as “on-chain average” or “active investor price” or “real market average,” calculated a potential significant resistance at $29,608 in August. It was developed as a result of a collaboration between ARK Invest and Glassnode and is a metric that divides the cost basis by the total token count. These tokens are determined by the total supply of tokens that have remained dormant over time.

Stablecoin Market Capitalization and Liquidity: Stablecoins are often seen as a liquidity gauge for the market. Observations showed that their 90-day supplies dropped from $162 billion in March 2022 to $120 billion, indicating reduced on-chain liquidity. However, during the same period, net inflows suggested growing bullish market momentum.

Bearish Scenarios for BTC

Divergence Between Real GDP and Real GDI Growth Rates: A significant discrepancy was observed in the annual percentage changes between Real Gross Domestic Product (GDP) and Real Gross Domestic Income (GDI). Historically, GDP and GDI should be at the same level because earned income should be equal to the value of produced goods and services. Former Federal Reserve economist Jeremy Nalewaik has argued that GDI may be a more accurate indicator than GDP.

Real Federal Funds Policy Rate and Natural Interest Rate: The Real Federal Funds Policy Rate has surpassed the Natural Interest Rate for the first time since 2009, indicating a shift towards tighter monetary policy. The theoretical rate, conceptualized by New York Federal Reserve President John Williams, represents the rate at which the economy neither expands nor contracts. Due to the long and variable lag in the impact of monetary policy on the economy, increased downward pressure on lending and borrowing is expected.

Government Employment Revision: Employment is a lagging indicator and has played a crucial role in Federal Reserve interest rate decisions. While it was expected that the labor force disruptions caused by the COVID-19 pandemic would have largely been resolved by now, the government has revised down non-farm payroll statistics for six consecutive months. This suggests a weaker labor market than initially reported. The most recent instance of such a trend occurred just before the Great Financial Crisis in 2007, except during a recession period.

In summary, ARK Invest’s report presents three bullish, four neutral, and three bearish arguments for Bitcoin and the broader market, highlighting that the market could be at a critical juncture. As of now, BTC is trading at $25,740.