Turns Out, Bitcoin`s `Beast` Was A Bear

Summary Bitcoin`s price has dropped significantly, and fundamental headwinds, including stretched equity valuations and negative ETF flows, suggest further downside risk. Bitcoin`s NVT ratio indicates overvaluation, and the coin`s correlation with US equities implies it`s seen as a speculative asset, not a safe haven. Technical indicators show bearish patterns, with BTC likely to re-test lower moving averages around $81k and potentially even $72-73k. I downgrade Bitcoin to a `hold` due to poor technicals and deteriorating fundamentals, advising caution and potential re-entry at lower price levels. Near the beginning of February, I was very optimistic on the short-to-medium term direction for Bitcoin ( BTC-USD ). Expressed through an article covering the Fidelity Wise Origin Bitcoin ETF ( FBTC ), my expectation for a rally to new highs in February - driven by seasonality and ETF demand - failed to manifest. The `Beast Mode` turned out to be of the bear variety. While I was certainly wrong on the price direction assessment from that piece, I did point out numerous concerns that I`ve had about Bitcoin for some time. Primarily, that network usage has fallen dramatically, address growth stalled out months ago, and the only real driver of price for BTC is seemingly the belief that someone else will pay more for it. More recently, I addressed the supply/demand dynamics of the coin through an article covering the iShares Bitcoin Trust ETF ( IBIT ). In that piece, I acknowledged the large supply/demand deficit between miner rewards on-chain and external demand from both ETF buyers and companies like Strategy ( MSTR ). The latter of which continues to buy BTC but seemingly at diminishing benefit to both company shares and the coin itself. As I write this, Bitcoin has already fallen to $86k per coin. In this Bitcoin piece, we`ll look at sentiment and capital flows, headwinds, and support levels to consider based on the assumption that this slide continues lower. Fundamental Headwinds and Valuation Broadly, there are clear headwinds facing risk assets and financial markets. I`ve detailed much of this in a separate post that readers are free to explore here . But the main takeaway is equity valuations are stretched, DeepSeek poses a real challenge to the justification for those valuations, rates are likely staying where they are, and all of these things are potentially problematic for an asset that behaves more like the Nasdaq ( COMP:IND ) than it does Gold ( XAUUSD:CUR ). 30 Day Pearson Correlation (TheBlock/CryptoCompare) Bitcoin`s 30 day correlation with Gold has been negative for nearly two full weeks. While correlation with the indexes has weakened since the beginning of February, Bitcoin has had a positive correlation with the US equity market since August. Meaning in a true risk-off environment, BTC is currently being viewed more as a speculative asset than as a safe haven. And there`s good reason for that view. I`ve made the case elsewhere that the US equity market is overvalued, the same could probably be said about BTC: 30 Day NVT Ratio (CoinMetrics) A valuation metric that I`ve always liked for crypto assets is NVT ratio - which takes the market capitalization of a coin and divides it by the USD-denominated transfer value that is settled on the blockchain. I think this is useful because it can give us insight into when something is moving on fundamental utility and when it`s moving more on speculative interest from increased capital flows. Bitcoin`s average NVT ratio is currently 211. While this isn`t the peak NVT ratio witnessed in the US ETF era, it shows that BTC is dramatically overvalued compared to historical averages and also when compared to something like Litecoin ( LTC-USD ) - which could very realistically be competing with BTC products for that same speculative capital through the ETF wrapper soon. Capital Flows & Sentiment ETF flows have flipped to considerably negative in the month of February. Capital flight from almost every spot BTC ETF over the last several weeks produced a $600 million negative MTD netflow as of February 21st per data from CoinShares. That number nearly doubled on the 24th according to tracking from Farside Investors: Daily ETF Flows (Farside Investors) In a single session on Monday the 24th, more than $516 million in spot BTC was puked out of US ETFs. And given about 6% of the circulating supply of BTC is now held through these instruments, the US ETF products have a large impact on the price of BTC going forward. When the investment community is spooked, BTC will not be immune. And what might also becoming a larger issue is that fact that Strategy appears to be the only real buyer this month: Strategy Strategy purchased another $2 billion on the 24th of February and is already down roughly 10% on that purchase in less than 24 hours. At slightly over 499k BTC, 2.5% of the circulating BTC supply is supporting MSTR shares. What I find so interesting about this is despite such a large single-whale buyer, sentiment in the digital asset market is horrific: BTC vs Crypto Fear and Greed (TrendSpider) At a 25 crypto fear and greed reading, there is currently as much fear in the market as there was last summer when the price of BTC fell below $50k. There could certainly be a contrarian signal at play here. But I`m not sure I`d be rushing in just yet. Out of Chances One of the ways I like to look at BTC pricing action is through the 8 week and 20 week MAs. Bulls battled with the 8 week MA for essentially nine weeks while the 20 week MA continues to encroach: BTC Weekly Chart (TrendSpider) As of article submission, the price of BTC has fallen convincingly below not just the 8 week, but the 20 week MA as well. With the two MAs seemingly set to converge shortly, BTC would need to stage a dramatic comeback between now and the end of the week to stave off what I view as significant chart damage on the weekly. We can already observe the bearish RSI divergence between December and January price peaks. I see a very distinct possibility that BTC re-tests the 50 week MA which is currently well below $80k and closer to $75K. The daily chart doesn`t look much better. BTC Daily Chart (TrendSpider) On the daily chart, I see a 50 week MA that is about to roll over the 100 week MA. I see a coin price that is quickly approaching both the 200 and 300 week MAs. Finally, I see a coin that has re-entered a price zone between $76-88k that has very little relative price discovery. While we could certainly argue that BTC is already oversold at a 28 RSI-14, BTC generally overshoots both up and down in terms of relative strength. And the bears appear to clearly be in control right now. Closing Thoughts At a certain point, moving averages have to be retested. I`m certainly not going to attempt to call the bottom here. I expected a new high earlier this month. I was wrong. Hindsight is always 20/20. I don`t personally have a lot of swing capital exposure to BTC on at this point in time. My core long position is still intact. But I don`t like the technicals right now and I`ve been pessimistic about what I view to be a deteriorating fundamental utility story for quite some time. Base case for me is $81k per coin which would be a retest of the 200 day MA. Though I certainly wouldn`t rule out a deeper pullback to $72-73k per coin. Which is a level that coincides with important MAs on the weekly, daily, and even the breakout over the high last March. I`m going to downgrade to a `hold` today because I don`t think it`s wise to try to catch this knife. My personal approach will be to put some of the speculative capital back on around $81k and to a larger degree at $73k if we get it. And frankly even in those scenarios, I could absolutely see macro headwinds remaining as a medium-term problem. The broader equity market appears headed for 200 day MAs as well given weakness in the `Mag7.` I`d imagine that will further depress BTC. So to sum it up; I would be careful here.

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