Tuesday marked a three-month low for bitcoin as a 17% freefall weakened underlying support significantly, leading BTC to breach well into $8,000 territory. As if to pour salt in the wound, yesterday saw another critical level of support cave in, as BTC fell into the $7,000 region.
Speaking about this appalling display on Yahoo Finance’s On the Move, Lee reiterated several prior warnings which hinted at a potential pullback.
The S&P-BTC Correlation
“About a month ago we called about how the S&P being trendless is not good for bitcoin, I think S&P needs to make a new high before bitcoin can breakout.”
Lee goes on to attribute bitcoin tanking to both the frustration from Bakkt’s poor launch performance as well as yesterday’s sell-off in stocks, which witnessed various indices fall including the S&P with a 0.2% pullback.
Unpopular opinion, Bitcoin won’t make a new high until S&P 500 makes a new high.
– $BTC has been rangebound because macro trendless. Confirmed by our Bitcoin Misery Index falling from 66 (50 now)
— Thomas Lee (@fundstrat) September 12, 2019
Reasserting this position, the strategist presented his “unpopular opinion” that bitcoin isn’t performing well in the current “trendless macro environment,” something which can only be remedied by a reprisal from the S&P. The theory goes that as the S&P becomes stronger, retail investors – who Lee believes are majoritively behind BTC’s price action – will seek riskier investments as they wish to maintain the same returns.
Bitcoin Misery Index
Highlighting one of Fundstrat’s proprietary indicators, Lee noted how the Bitcoin Misery Index (BMI) provided a forwarning earlier this year:
“This year we wrote about how our Bitcoin Misery Index actually broke below 66, so it’s essentially risk-off for bitcoin. So we said until that thing falls towards 60, you shouldn’t really try and dabble in bitcoin. “
The BMI calculates bitcoin volatility by measuring the amount of winning trades against the cumulative number of trades, essentially conveying how miserable or content holders are based on BTC’s price and volatility. Following calculation, a rating between zero and 100 is rendered, with each end of the spectrum representing either euphoria (100) or misery (0). A threshold below 50 typically presents a buy signal.
Back in July, this indicator flashed 66, with Lee noting that the was “waiting for the BMI to get to 50 before expecting the next big up move.”
Is It All Over?
Luckily for long-term holders, Lee suggests that this will likely only be painful in the short term:
“Bitcoin is vulnerable, but I don’t think the thesis is broken. So if someone saying, ‘does this mean bitcoin’s a broken story now,’ I mean I think long-term holders should not worry.”
As for a longer-term outlook, Lee emphasized the bitcoin halving in 2020, something which he believes will provide the ultimate catalyst. In the meantime, his advice is to practice some patience.
#Bitcoin consolidating not a bad thing.
– it’s overbought and needs to see weaker sentiment. Our #bitcoinmiseryindex has been saying this since July.
– and it’s stuck time until S&P 500 ends this ‘trendless macro’ period.
— Thomas Lee (@fundstrat) September 25, 2019
Regardless, the strategist took one last-ditch attempt to turn investors away, relaying that trading BTC is “treacherous, adding:
“I don’t know how anyone could be trading bitcoin right now.”
Nevertheless, despite Lee’s efforts, this is unlikely to put the hardcore day traders off their game.