The setup in bitcoin looks bullish.
Here’s the chart…
After peaking above $105,000 in early February, bitcoin has been in a consistent downtrend – making a series of lower highs and lower lows. But, as bitcoin approached $75,000 earlier this month, the momentum indicators at the bottom of the chart were making higher lows.
This sort of “positive divergence” is often an early warning sign of an impending rally.
For the past three weeks, bitcoin has been stuck in a tight trading range near the $85,000 level. This consolidating action has allowed all of the various moving averages to coil together and build up energy to fuel the next big move.
And, after yesterday’s rally, it appears “the next big move” will be to the upside.
But, as bullish as the setup is in bitcoin, the bitcoin mining stocks look even better.
bitcoin and the bitcoin mining stocks tend to move in the same direction. When bitcoin is in rally mode, so too are the miners. When bitcoin is falling, the miners tend to decline right along with it.
But something unusual has been happening for the past several weeks. While bitcoin has been chopping back and forth in a trading range between $76,000 and $86,000, the bitcoin miners have been declining to new lows.
The stock declines have been so severe the miners now trade at the lowest value ever relative to bitcoin. Take a look at this ratio chart comparing the performance of bitcoin versus the Valkyrie Bitcoin Miners Fund (WGMI)…
When this chart is rising, bitcoin mining stocks are outperforming bitcoin. When the chart is falling, the miners are underperforming.
The relative underperformance of the miners has never been this extreme.
That means one of two things must happen to bring it back into its historic range. Either bitcoin needs to fall, or the bitcoin miners have to rally – or some combination of the two.
The current setup in bitcoin looks bullish. And, if bitcoin rallies then the mining stocks are likely to play a game of “catch-up.”
Traders who are bullish on bitcoin can buy the cryptocurrency right here. But, the bigger gains will likely come from the bitcoin miners.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
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