Christine Lee:
Joining us now discuss is TheoTrade Co-Founder Don Kaufman. Don, give us the technical analysis of what you're seeing right now. We're seeing Bitcoin rising throughout January. It seems to be a bit of a correction. Are we in a bear market rally that is now correcting itself or something more dangerous?
Don Kaufman:
Yeah, one of the things I would absolutely consider here is this is probably still the kind of quintessential bear market rally, and I know that that's not necessarily what people want to hear, but in a bear market rally, look prior to this rally back, which the entire S&P 500 rallied, tech rallied. Prior to that though, I did not see that huge capitulation event I believe that really needed to occur, and ultimately the FTX debacle really, I think made people in this marketplace believe that the worst is ultimately behind them.
Christine Lee:
All right. What can you say about the volatility we're seeing in the Bitcoin markets right now? Is that a cause for concern?
Don Kaufman:
Yeah, it is actually. One of the more concerning aspects is implied volatility. So, a lot of people they look at volatility in different ways. The historical volatility, which is price action, the actual underlying. In this case, they look at implied volatility, which relates of course, to the option markets specific to Bitcoin, and implied volatility has dropped to around 56%. Just to give you comparison, right? Tesla, stock inside of the S&P 500, everybody knows Tesla comparing it, it's about 80%? I mean, Bitcoin though, it just lacks that kind of punch that it needed to go through to see the capitulation event. The other thing I think that we're lacking at this point is there's not a lot of new blood inside of this market. People ask, who are the buyers right now? Who are the buyers? They're exact same buyers that were there years ago?
You have this little hardcore group that is still hanging on, of course, to crypto and hanging on to Bitcoin. We need to see a bigger capitulation event. We need to see many of those in that group get flushed out, or ultimately new blood can come in and spark real beginnings, a real definitive rally. At this point, like the S&P 500, like the NASDAQ, it does appear that we're still in the midst of a bear market rally. This one, it's no different than we saw multiple times in 2022. I mean, ask what's different about this rally? I got to be frank in saying that this rally inside of the S&P 500 actually smaller than the rally we saw in October, which is smaller than the rally that we even saw back in August of 2022.
Christine Lee:
We are seeing a correlation, however, between the crypto market and the NASDAQ that's turning positive ahead of US CPI data to be released tomorrow. What does that tell us about the crypto markets?
Don Kaufman:
Yeah, unequivocally, CPI right now, this is a dangerous time. There's no question about it. It's going to be dangerous in the NASDAQ. It's going to be dangerous in the S&P 500, and unequivocally it's even more dangerous right now inside of crypto because what you ultimately have is these constant data events coming out. It's like throwing a match into a pool of gasoline almost on a weekly basis. Everybody's sitting pins and needles waiting for, Hey, what's the next evidence that the Fed has to either slow down or ultimately tighten faster at a harder pace? And the danger here in lies that we're not seeing disinflation fast enough.
In this particular case, CPI, it can move rates higher. So, if you have the 10-year start to head higher, they're going to go after tech, meaning that traders are going to sell tech and ultimately crypto and Bitcoin is going to get caught up with that. As you said a moment ago, the correlation has been a very much positive one. So, in light of that, again, you expect higher interest rates at this point would actually allow for some sell side activity to persist inside of the crypto marketplace. And probably, as you also mentioned earlier, the 20,000 mark is a great demarcation line here in the very near term.
Christine Lee:
We're also seeing the US dollar going up, which is potentially putting pressure on risk assets. So, why do you think that is?
Don Kaufman:
Yeah, so the US dollar throughout the course of last year, the beating of this year, it's kind of been a risk on risk off kind of status. When we're buying dollar, we're selling other assets, selling S&P 500 selling Nasdaq and ultimately selling crypto. You have to look right now at the dollar, you and people are talking about the reserve status of the dollar going away. I don't look at it that way. I look at the dollar almost as like the new volatility indicator. If trade is buying dollar, clearly they're going to be coming out of crypto, they're going to be coming out of the S&P 500, they're going to be coming out of metals. I mean, look, we're talking about inflation, inflation being out of control. Where's gold been the entire time? It hasn't been. I mean, people have been rushing into the dollar, which again is going to hurt a lot of the other asset classes, obviously Bitcoin included.
Christine Lee:
What are the support and resistance lines to be watching out for Bitcoin? You mentioned $20,000 as potentially being that support level.
Don Kaufman:
Yeah, actually in the lower $18,000 range, I've also got a key level. Below, it's somewhere around $18,200. Below there it becomes a little bit of a free for all, and that's exactly the kind of price action I'd look for. Again, I don't want to sit here and be the bear that inside of the crypto marketplace, but at the exact same time, I want to see the capitulation event. I want to see his head down and around the $13,000 mark, get some new blood into the marketplace and let a real rally ultimately ensue. I think that's a very difficult thing ultimately to do though at this point where the Fed still right in our face. I mean, the Fed is not wind at your back anymore. You are fighting the Fed in this particular market case, and we're going to continue to be fighting the Fed for the time being.
Christine Lee:
Any idea of what that capitulation event could be?
Don Kaufman:
So, the capitulation event hopefully is again, in and around that $13,000 marker inside of Bitcoin specifically. Now, what's ultimately going to drive us there? Well, obviously, as I said, probably something fed related, but there's just a number of catalysts ultimately along the way. Nevertheless, make the same argument inside of the S&P 500, same argument inside of the NASDAQ. We are far from green pastures in this marketplace. I'm not sure why people are looking at this rally any other different than some of the rallies that have occurred last year. I mean, again, markets are up right now, but until something changes economically, look, we're still in again, that quintessential bear market rally.
Christine Lee:
Yeah, and we're seeing a lot of regulatory scrutiny coming in from US regulators. Don, thank you so much for joining us. That was TheoTrade Co-Founder Don Kaufman.