Time to Take Bitcoin Profits as $100K Milestone Nears?

Key Points

• Most investors are still deciding whether to stay in Bitcoin or reduce their profits from the last bull run to new all-time highs.
• It turns out that warning signs are coming in from other risk-on asset classes like gold and small-cap stocks.
• These signs have been acted on by institutional investors, who have liquidated millions out of Bitcoin.

The world of cryptocurrencies, Bitcoin in particular, is no different from the financial sector or the rest of the stock market. When a big new project, such as artificial intelligence or new healthcare breakthroughs, makes it to the media headlines, there will be a few months or even years when the stocks involved with these hot issues trade as if in a world of their own.

However, as their market capitalization, popularity, and adoption rates with customers and investors rise, these issues become part of the broader market environment, the bit machine, so to speak. This is what is currently happening in Bitcoin: a massive transition from being a standalone asset class and instrument to now being affected by trends in other asset classes like bonds and commodities, not just in the United States.

This is why the price action in the SPDR Gold Shares NYSEARCA: GLD and the iShares 20+ Year Treasury Bond ETF NASDAQ: TLT acts as a warning for investors to consider if they hold any exposure to Bitcoin. Otherwise, there are other ways to track the price of Bitcoin, such as through the iShares Bitcoin Trust NASDAQ: IBIT, another instrument to consider offloading and watching right alongside these cautionary movements in other markets.

Understanding Bitcoin's Market Connection: What Investors Need to Know

Bitcoin can be considered a risk-on asset class, like gold, oil, and even small-cap stocks. Accepting this relationship can help investors understand the rest of the underlying equation behind Bitcoin’s price action. When gold, bonds, and small-cap stocks move in tandem, showing a common trend behind them, Bitcoin likely will follow.

Today, price divergences and convergences send a very clear message to investors, and while it might be bearish for most, it will be bullish for those who know how to act. The 20+ Year Bond ETF and the iShares Russell 2000 ETF NYSEARCA: IWM have become negatively correlated, with bond yields lowering along small caps giving up gains.

At the same time, gold is struggling to break past the $2,700 mark while the dollar index refuses to give up its recent highs. What does all this mean? Keeping the context front and center means the market looks at a potential recessionary environment, where risk-on assets tend to be unloaded.

This is why bonds have risen recently, as the risk-off assets start to take on a larger share of this capital rotation. Now that the connections in traditional asset classes have been made, it is time to figure out what it all means for Bitcoin’s price.

What Asset Correlations Reveal About Bitcoin's Future Price Moves

If the trend does, in fact, show that the market is becoming less optimistic about these risk-on asset classes, then there is not much to stand behind Bitcoin’s rally as far as tailwinds go. While this may act as a cautionary note, it can also serve as a tool for investors who may be taking profits off the table and are now wondering where the next price would be a buy.

Well, keeping track of the price action in these asset classes can be a fantastic timing tool, as today’s market is driven mainly by psychology and volume. It may take a few days for all the markets to align in one view, but when they do, investors can position themselves in a relatively simple manner to come out winning.

Speaking of investors positioning themselves, other gauges can be followed to justify what is being read in this subject. Institutional investors, particularly those at Anson Fund Management, decided to reduce their exposure to Bitcoin by selling up to 19.8% of their holdings in the iShares Bitcoin Trust as of November 2024, right around when the bond market rally started to give everyone a warning.

When it comes to volume, another point needs to be made in this ETF tracking Bitcoin’s price action. While the average daily volume has been around 34.4 million shares, December 9th saw an outrageous bump to 54.9 million right when the ETF hit a double-top in its price.

The lack of follow-through, or a breakout from this top, would signal that the massive volume was probably not on the buying side but rather willing sellers coming in to absorb all the liquidity that sat around this top. More than that, after the market close, the price of Bitcoin fell to and below $96,000 to confirm that this volume was, in fact, selling pressure.

Ultimately, the evidence is confirmed through capital flows outside of these institutions. According to CoinDesk, the sharp pullbacks from Bitcoin’s all-time high triggered many sell orders, taking up to $450 million worth of capital out of Bitcoin.