10x Research: Bitcoin Breakout? Not so fast. What Traders Need To Know

👇1-14) Based on historical analysis, Bitcoin returns tend to be flat in August and down in September. However, tailwinds from the US interest rate policy, lower inflation, and the election calendar could buffer any downside pressure from $1 billion in token unlocks in August. Bitcoin dominance is making new highs for this cycle with notable implications.

👇2-14) While we expect an eventual breakout, Bitcoin will likely need ‘macro’ help in the form of projected Fed rate cuts or another dose of lower inflation. Traders must observe Bitcoin when prices trade near the top of the range. The FOMC meeting on July 31 and the US CPI report on August 14 will be critical. Below, we explain whether Bitcoin will remain within this wide, painful-to-trade range or if prices could break out.

Bitcoin downtrend channel (purple lines) - A breakout looms? Or Not?

👇4-14) Bitcoin has been in a gradually declining but well-defined downtrend since early March. The upper trend line was tested more frequently (five times) than the downtrend line (three times), so we expect a breakout is more likely than a breakdown as the upside pressure appears larger. The upper trend line would be broken if Bitcoin closes above 69,000. Above those levels, Bitcoin could accelerate.

👇5-14) Crypto market structure fundamentals remained relatively weak, with additional stable coin minting low since the April 20 Bitcoin halving. Bitcoin Spot ETF only gradually picked up despite the announcement that three US pension funds want Bitcoin exposure. Without fiat-to-crypto inflows, Bitcoin is driven by traders’ willingness to increase leverage and a potential shift from Ethereum into Bitcoin.

Bitcoin (RHS) vs. Bitcoin Dominance (LHS, %)

👇6-14) Bitcoin's dominance has increased to 55.5%, the highest level since April 2021. After the launch of the Ethereum ETF, we saw a notable shift from Ethereum to Bitcoin. The Bitcoin ETFs raised $500m during the last week, while the Ethereum ETFs have seen a net outflow of $341m, while Grayscale’s converted ETH product saw $1.5bn of outflows. Our views have been to sell calls on ETH, buy calls on BTC, or find other ways to benefit from Bitcoin’s outperformance (Long BTC vs. Short ETH).

👇7-14) The US GDP was strong at 2.8%, but one percent was due to inventory building, overstating the strength of the US economy. On Wednesday, July 31, Fed officials will likely signal that an interest rate cut is possible at the next meeting in September as inflation has been lower, the labor market seems to be cooling, and restrictive interest rates are causing unnecessary economic weakness. Cutting rates would keep the labor market in a sweet spot and ensure the soft landing thesis.

👇8-14) Historically, the Fed has waited 5-10 months between the last Fed rate increase and the first cut, while the current pause at 12 months is among the longest in the Fed’s history. The 2-year treasury yield has already declined to 4.38%, indicating that Fed Funds (interest rates at 5.25%) are far too high relative to market pricing (and relative to inflation at 3.0%). Indicating on July 31 that the Fed could likely cut on September 18 should push Bitcoin back above 70,000.

👇9-14) Trading volumes remained low over the weekend despite presidential candidates and politicians making bullish claims about Bitcoin. Robert Kennedy’s proposal to buy 4 million BTC as a strategic reserve from the open market is as unrealistic as Trump’s vote-catching comments about firing SEC Chair Gensler. It is worth noting that the president cannot remove the chair of an independent commission (SEC), a fact that the Supreme Court ruled unconstitutional (see Seila Law LLC vs. Consumer Financial Protection Bureau on June 29, 2020).

👇10-14) During his speech at the Bitcoin maxi conference in Nashville, Trump confused Bitcoin with ‘crypto’, and his remark that all remaining Bitcoin should be mined in the US demonstrates a superficial understanding of ‘Bitcoin’. His speech in Nashville lacked substance and offered no new insights, contributing to Bitcoin's failure to rally. Furthermore, while the US government holds 200,000 BTC, 65,000 belong to Bitfinex, meaning the actual amount held by the US is significantly lower.

👇11-14) Understanding these little details is essential in judging how much political support Bitcoin might have. But being against Bitcoin is now a losing proposition for any politician who wants to be elected, and this is why the Democrats also want to appear a bit more crypto-friendly. At this point, many propositions are just vote-catching.

👇12-14) Nonetheless, it is essential to recognize that political support, even verbal, should be viewed as a positive sign for the crypto industry. This will also support more pension funds to buy Bitcoin (Wisconsin, Jersey, Michigan). The FOMC meeting on July 31 could act as a catalyst for Bitcoin to surge past 70,000. Given Bitcoin’s growing dominance and the persistent challenges faced by altcoins, it is logical to anticipate higher Bitcoin prices relative to other tokens.

Other notable events:

👇13-14) Wormhole will unlock $180 million, a third of its supply after the April airdrop. ZetaChain will unlock 20% of its more than $50 million supply. Optimism $55m (July 31), dYdX $11m, Sui $50m ZetaChain $35m (all August 1), Wormhole $180m (August 3), ImmutableX $49m (August 9), Aptos $80m (August 12), The Sandbox $69m (August 14), StarkNet $35m (August 15), Arbitrum $67m (August 16), Avalanche $268m (August 20).

👇14-14) August 1 is the vote for Jupiter’s proposed token supply reduction by 30%, pSTAKE Finance is launching a BTC Liquid Staking solution on July 29, Rounter Chain, an interoperability solution, will go live on mainnnet on July 30, the first Ethereum L2 powered by Solana VM is launching this week, and Drift will launch prediction markets on Solana soon.