Finding Bitcoin Support, Eyeing BITB Amid Poor Seasonal Trends (NYSEARCA:BITB)

The price of Bitcoin (BTC-USD) plunged during light holiday trading shortly after the Fourth of July. The move didn’t come out of nowhere, though, as the cryptocurrency was already experiencing selling pressure off its most recent peak above $70,000 in early June. Before the close of the holiday-shortened week on Wall Street, the price of one Bitcoin had dipped under $55,000 – a more than 20% pullback in less than a month’s time. Investors are left wondering if now is the time to add to a position or wait for a more favorable entry point.

I assert that some patience is needed, but we are nearing critical support. I have a hold rating on shares of the Bitwise Bitcoin ETF (NYSEARCA:BITB). It’s among the smaller spot Bitcoin ETFs, but it has respectable size and is a good proxy for Bitcoin in my view.

Why has Bitcoin pulled back so hard from a fundamental perspective? We can perhaps pin the decline on Mt. Gox, a once-prominent Tokyo-based Bitcoin exchange that is now preparing to reimburse creditors after its 2014 bankruptcy with approximately $9 billion worth of Bitcoin. On July 5, 47,000 Bitcoin were moved to another wallet from Mt. Gox. It was Bitcoin’s fourth straight session of losses.

Bitcoin Plunges Into Early July, Bear Market Territory

Bitcoin and Stocks Losing Correlation

According to the issuer, BITB allows investors to gain convenient, low-cost exposure to bitcoin through a professionally managed ETF. This may avoid the cost, complexity, and custody concerns of owning Bitcoin directly. Bitcoin has distinct return patterns and historically low correlations to traditional stocks and bonds. As a result, bitcoin can offer long-term diversification and risk management benefits to an overall investment portfolio.

BITB is a moderate-sized ETF with $2.3 billion in assets under management as of July 3, 2024. Its low 0.20% annual expense ratio puts it close to the cost of comparable spot Bitcoin funds, but its share-price momentum has weakened considerably in the past month, now hitting technical bear-market territory. BITB is a highly liquid product given its average daily trading volume of nearly two million shares, while its median 30-day bid/ask spread is narrow at just three basis points, per Bitwise.

What’s troubling right now for the Bitcoin bulls is that for the first time since last October, the world’s largest cryptocurrency is now under its 200-day moving average. As Grant Hawkridge pointed out this morning, Bitcoin’s historical forward returns are not all that rosy when the price falls below the key long-term moving average. This has me concerned about further downside.

Bitcoin: Poor Returns Following A Cross Under the 200dma

Making the weak price action even more worrisome is that it comes as the Bloomberg United States Financial Conditions Index has turned exceptionally loose. Normally, you would expect risky and speculative assets, such as Bitcoin, to perform well amid such lax conditions.

That’s not what we are seeing right now. This is a possible tell that if financial markets turn more volatile, then something like Bitcoin could endure even more losses.

Loose Financial Conditions

Another negative factor? Seasonality. This chart is from Jeffrey Hirsch, and it illustrates that the June through early October period has historically been the worst calendar stretch for Bitcoin in its more than a decade-long trading history.

If we were to follow seasonal trends, then a cautious approach would be prudent during the third quarter. But where is a good place to begin accumulating or adding to an existing Bitcoin position? Let’s inspect the chart.

Bitcoin: Bearish Seasonal Stretch Through Early October

The Technical Take

I will begin by assessing Bitcoin’s chart, and will then translate that into price points on BITB. Notice in the graph below that shares are under the rising long-term 200-day moving average. If price can reclaim that trend indicator line, then much of the bearish sentiment could get wiped away. But if it remains under the 200dma, we have to find potential areas of interest lower from today’s $55,000 level.

I see two spots. The first is the 38.2% retracement of the rally from $15,480 in November 2022 to the peak of $73,800 in March 2024. That comes into play near $51,000. I would expect some technical support there. The second area of interest is the $48,000 to $49,100 range – that was resistance in early 2022 and again at the beginning of this year. What’s more, the cryptocurrency consolidated there before surging to a new all-time high back in February. It’s a natural polarity area, so buying there, with a stop depending on your risk tolerance, would make sense.

On the upside, there is now a large amount of volume by price, or bearish congestion, in the $58,000 to $73,000 zone, which will make conditions tough on the bulls.

Bitcoin: $51k and $49k May Offer Support, But BTC-USD is Below the 200dma

Translating that into price spots on BITB, be on the lookout for support at $28 and $27, respectively.

BITB: Support at $28 and $27

The Bottom Line

I have a hold rating on Bitwise Bitcoin ETF. With higher volatility today and key support about 10% under the latest Bitcoin price, prudence is encouraged to buy the ETF at a more favorable risk/reward price.