We think this pre-halving crypto crash creates a compelling buying opportunity… but not quite yet…
As of this writing [last Saturday], only six of the top 100 cryptocurrencies rose this past week.
Pre-halving jitters are nothing new for cryptocurrencies. Looking at both the second and third Crypto Boom Cycles, Bitcoin rallied strongly in the months leading up to the halving event, only to sell off sharply in the weeks before the event.
History seems to be repeating itself.
Bitcoin soared from January to April. Now, just ahead of the fourth halving, BTC is pulling back. This is very consistent with historical behavior around halving events…
That, of course, means this pre-halving crash is a great opportunity to buy more cryptocurrencies. But not quite yet.
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The “green flag” that Luke is watching out for
Luke’s “buy” trigger comes from Bitcoin’s MACD Indicator.
Regular Digest readers know that the MACD (moving average convergence/divergence) reflects changes in a price trend’s strength, direction, momentum, and duration. Traders use this tool by analyzing the location of the MACD line relative to its signal line.
At its most basic interpretation, if the MACD crosses above the signal line, it’s considered a bullish crossover, and potentially a buy signal. The opposite is true as well.
It’s this bullish crossover that will signal to Luke it’s time to buy.
Back to his Crypto Investor Network update:
If we [see] Bitcoin push higher back towards $70,000—then we will also get a bullish moving average convergence/divergence (MACD) crossover for the first time since early 2024.
That crossover will be the “buy signal.”
Until then… we wait.
But we stay at-the-ready to buy once that signal appears.
Below, you can see how this looks.
Bitcoin’s current MACD indicator is showing no signs of this bullish crossover. The MACD (the black line) is angling steeply south, well beneath the signal line (the red line). It has also now fallen into negative territory.
This chart is suggesting a greater likelihood of short-term weakness than strength.
Despite this potential for further declines, let’s remember what history suggests is coming for Bitcoin investors after the halving
To make sure we’re all on the same page, the halving is an event specific to Bitcoin where “Bitcoin miners” (think, computer whizzes) solve complex computer puzzles to release new Bitcoin. Their reward for doing so is an amount of Bitcoin that’s already baked into the algorithm. Each halving reduces this reward by half, hence the name “halving.”
Historically, the three prior halvings have been very bullish for Bitcoin’s price for months on either side of the event. Below is a chart from CoinDesk detailing this outperformance.
If you’re having trouble reading the fine print, here are the data:
Halving 1: 11/28/2011
Bitcoin performance 365 days before the halving: +385%
Bitcoin performance 365 days after the halving: +8,069%
Halving 2: 7/09/2016
Bitcoin performance 365 days before the halving: +142%
Bitcoin performance 365 days after the halving: +284%
Halving 3: 5/11/2020
Bitcoin performance 365 days before the halving: +17%
Bitcoin performance 365 days after the halving: +559%
But there’s usually a steep correction right around the time of the actual halving. This occurs when the early money takes profits.
In 2016’s halving, the correction was -38% deep. In the 2020 correction, it was a -20% drop.
Let’s return to Luke for more historical context about the halving and Bitcoin’s price action:
In both the second and third Boom Cycles, the pre-halving selloff didn’t last long. It ended almost immediately after the halving.
BTC then consolidated for a few weeks in each cycle before starting to soar about two months after the halving event. From there, BTC never looked back in either cycle, in 2021 or 2017.
Similar price action unfolds in the altcoin market.
Altcoins tend to rally nicely in the months leading up to a halving event, before falling flat right before the event and remaining flat for a few weeks afterward. Then, about two to three months after a halving event, altcoins start to gather momentum.
It’s off to the races after that.
So, putting it altogether, Bitcoin appears to be following its historical price pattern. While that’s bullish overall, it’s bearish for the moment. If you’re looking to put money into the sector, recognize that the immediate trend is “lower” not “higher.”
For more of Luke’s analysis in Crypto Investor Network, click here.
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Switching gears, what will be the fallout of the surging 10-year Treasury yield?
In the wake of yesterday’s hot retail sales report, as well as the prospect of full-blown war in the Middle East, the 10-year Treasury yield has continued surging. As I write, it’s at 4.67%, its highest level since last November.
For newer Digest readers, the 10-year Treasury yield is the single most important number for the global economy and investment markets. All sorts of interest rates and asset values are directly impacted by whether the 10-year Treasury yield rises or falls.
For stocks, a higher yield is typically a headwind for two main reasons.
One, when analysts estimate a stock’s value, they use what’s called a “discount rate,” which is heavily influenced by the 10-year Treasury yield. Given the math involved, the higher the discount rate, the lower the net present value of a company’s future cash flows – which means lower stock prices.
Two, a higher 10-year Treasury yield entices some investors to pull their money out of stocks to benefit from this “risk free” higher yield (it’s risk free when a government bond is held to maturity). That puts downward pressure on stock prices.
With this context, below you can see how the 10-year Treasury yield has exploded from less than 3.85% in late December to 4.67% as I write (the chart below stops at yesterday’s yield of 4.63%).
Could this surging 10-year Treasury yield impact the Fed and its timing for interest rate cuts?
As you’re likely aware, higher borrowing costs (as a byproduct of higher interest rates from the Federal Reserve) leads to weaker investment and spending, which curbs inflation. This is what we’ve been living through since March of 2022 when the Fed began its efforts to slow inflation.
But the same braking dynamic often occurs organically when higher bond yields weigh on stocks and various asset prices. So, this surging 10-year Treasury yield has a de facto tightening impact on the economy.
Might this tightening influence the Fed and the timing of its first interest-rate cut?
Yesterday, legendary investor Louis Navellier updated his subscribers on the soaring 10-year Treasury yield in his Flash Alert podcast in Growth Investor.
Let’s jump to his latest thoughts on the timing of rate cuts:
The European Central Bank (ECB) is planning to cut [interest rates] in June. I think it would be a good idea for us to have a coordinated rate cut with the ECB, and maybe the Bank of England can join in.
But if the ECB cuts and we don’t cut, it’s going to mean a very, very strong dollar which we saw happening last week.
And a strong dollar lowers the cost of imported goods, but commodities are priced in dollars, so outside the United States, things are getting more expensive for everyone else.
For a more detailed discussion on the timing of interest rates cuts from the Fed, I’d encourage you to check out the free replay of last week’s Election Shock Summit event featuring Louis and Charles Sizemore, the Chief Investment Strategist at The Freeport Society.
While Louis is hoping for the first interest rate cut to happen in June, Charles believes we won’t see any rate cuts until after the presidential election. He says this will have the domino effect of President Joe Biden losing the November election, an upheaval in the financial markets, and a fresh wave of volatility in the stock market.
You can watch that free replay right here.
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Finally, a quick heads-up
Not sure how to handle today’s market?
Well, how about trading it, regardless of which direction it’s headed?
Better still, how about trading it with the guidance of a 20-year market veteran who walks you through trades on a daily basis? And if all this was free, that would be great too.
Well, that’s what you get with Jonathan Rose’s Masters in Trading: Live.
It’s a free livestream at 11 a.m. Eastern, offered each day the market is open. Jonathan talks about market action, highlights potential trade setups, and issues a “Trade of the Day.”
By the way, these livestreams are short – usually about 15 minutes. You’re able to get in and out without it eating up a huge chunk of your day.
This is a fantastic way to see the markets through the eyes of an expert. So, even if you don’t make any trades, you’ll come away as a more informed investor.
To check out Jonathan’s livestream, just click here.
Meanwhile, we’ll keep you updated on Bitcoin, the 10-year Treasury yield, and the latest on the timing of rate cuts here in the Digest.
Have a good evening,
Jeff Remsburg
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