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Written by: Przemysław K. Radomski, CFA
Bitcoin was heralded as the new gold. But the “old” gold ultimately managed to move above its 2021 highs, while the “new” gold didn’t.
Gold didn’t disappear; they both coexist, and they both have a strong anti-dollar vibe.
But… Could it be the case that bitcoin’s rally is over? It hasn’t moved to new highs after all, despite halving, which was supposed to ignite a powerful move up. It seemed like a sure bet, as it limits the supply of bitcoins. Instead, it triggered another attempt (!) to move to new highs – one that failed, too.
How come? Those who have been in the markets for longer know this – it’s because “sure bets” are already discounted in the price before the event takes place.
Think about it. If you knew that a given market was going to move higher, would you wait with your purchase or would you buy now, before this certain move takes place? Of course, you’d buy now. And so would everyone else. The rally would, therefore, happen before the actual event. And when the event finally does take place, the only thing that people can do is sell, because everyone that considered buying, already bought. There’s nobody left to buy and keep pushing prices higher.
Of course, I’m exaggerating a bit to make a point. In reality, people can also wait, which is why the sure-bet events are not immediately followed by crashes. They tend to happen after some time. Like when the SLV ETF was launched (that was a sure-bet event that was supposed to take silver to the moon) – silver price crashed, but not immediately after the event (it happened shortly thereafter, though).
Bitcoin halving was a sure-bet event, so people bought it beforehand. Some late comers bought it after it happened, but bitcoin’s inability to move to new highs and hold those levels proves that something’s not right.
Can bitcoin really fall? It’s been only rising with bigger or smaller corrections for many years… Let’s go back in time, about 25 years. Could internet stocks fall after such a powerful rally? Apparently, they could.
Why am I elaborating on the situation in bitcoin today? Because it has a specific tendency to top along with gold or a bit before gold tops.
I marked the recent tops in bitcoin, and I added gold price to the chart. Bitcoin is in blue.
The late-2017 (bitcoin) and early-2018 top in gold perfectly correspond to this pattern. The same goes for the mid-2019 top. In case of the 2021 tops, the link is not as clear, but still we saw tops in bitcoin along with tops in gold, and the former topped earlier.
Perhaps 2021 is special as it was THE top in bitcoin – the one that turned out to be unbroken (at least not successfully, without an invalidation of the breakout) for years.
The early-2022 tops in bitcoin and gold were also aligned, but this time, gold formed its intraday top first. Still, bitcoin formed its final top before gold formed its final top, before sliding.
And this is where we are now: in a situation where bitcoin topped in March, and gold topped (in a double-pattern style, just like in 2011) in May – about two months after bitcoin’s top.
Since bitcoin just failed to move to new highs despite its sure-bet event, it seems that the top (a major one) in it is in. And since gold topped after that, just like it often does, it increases the odds that gold formed a major top as well.
But wait, there’s more!
Electricity is used to produce bitcoins, and copper is often involved as it’s the second-best conductor of electricity (silver is the best one). What about the link between bitcoin and copper?
As one would have expected, those markets are also aligned, and they also top at the same time.
Interestingly, in late 2017 and in early 2021, bitcoin topped slightly before copper did, and in late-2021, bitcoin topped a bit later.
And what did we see in copper recently? A massive, crystal-clear invalidation of the move to new highs. That’s an extremely strong sell signal for copper.
Given how aligned copper is with bitcoin, it’s quite likely that both markets are going to fall further – which doesn’t bode well for gold.
Moreover, gold and bitcoin are anti-dollar assets, and the U.S. dollar…
The U.S. dollar is after long-term breakout, and a prolonged verification of this breakout. The breakout took place in 2015 and the consolidation ended in 2022, when the USDX soared above the 2016 and 2020 highs.
Based on the decline that we saw in 2023, the move above those highs (marked with orange rectangle) was verified. What used to be resistance, is now support.
This consolidation also appears to have ended, as the USD Index recently broke above the declining, medium-term resistance line (marked in red). This breakout was more than verified, and it seems that the door for rallies in the USD Index is wide open.
Soaring USD Index is – of course – a factor making the anti-dollar assets less appealing. This creates a great opportunity for those willing to think differently than the majority of the investment public.