Bitcoin issues a rare capitulation signal that triggers a historically violent rally

Bitcoin is currently trading around $89,000 after the 14-day relative strength index fell below 30, the threshold for traders to capitulate, in mid-November.

A chart distributed by Global Macro Investor's Julien Bittel (source: LSEG Datastream) overlays Bitcoin's recent trajectory with the average trajectory of the past five times the RSI has fallen below 30, charting a route that would end around $180,000 approximately 90 days after the oversold print.

The $180,000 waypoint is a calculated return. Since Bitcoin is around $89,000, reaching $180,000 would mean an increase of about 105% in about 3 months, or about 0.80% compounding daily.

This graph is an average of the event study, not the predicted distribution. This means that differences in paths across these five historical cases may be masked.

4-Year Cycle and Market-Top Dwemer Evidence

Price trends since October continue to fuel the “cycle” theory. Bitcoin hit a high of $126,223 in October, but then sold off into late November.

The decline reached a low of around $80,697 on November 21st, down about 36% from the October high.

This decline is already well within the 35% to 55% drawdown band defined by trendingcoinz's cycle timing framework, and roughly maps the bottom zone between $82,000 and $57,000 if the post-halving pace remains the dominant model.

Time’s up: The rationale behind why Bitcoin’s bear market cycle started at $126,000

second crypto slate The analysis focused on $106,400 as a balance point that repeatedly flips between support and resistance.

Bull or bear? Today’s retest of $106,000 decided Bitcoin’s fate

Bitcoin has spent several weeks below that level until mid-December, which has important implications for the RSI chart. This is because a rally towards $180,000 will almost certainly require not only a rebound in momentum within the correction range, but also acceptance above the previous regime pivot.

Flow is what really cross-checks whether the bounce theory has fuel. Investors withdrew a record $523 million from BlackRock's iShares Bitcoin Trust (IBIT) on Nov. 19 as Bitcoin fell below $90,000, and the ETF's net inflows have been roughly flat since then.

Derivative positioning adds another constraint where the market is paying for optionality and where the dealer's hedge can maintain a spot within the band.

According to a trendingcoinz report on options complexes, dealer gamma concentrations range widely from $86,000 to $110,000, and this range can facilitate two-way trading as hedges adjust and slow trend movement until a spot exit on follow-through.

Bitcoin’s $55 Billion Options Market Is Currently Obsessed with a Specific Date That Will Force a $100,000 Showdown

According to Barchart's technical dashboard, Bitcoin's 14-day RSI has returned to an average of around 40 after reading below 30 in mid-November, which fits with a pullback but leaves the market susceptible to renewed selling pressure if flows weaken again.

Is the 4 year cycle over?

Bittel's claim that the four-year cycle is dead is based on macro mechanics, not calendar halving. He links cycle timing to the dynamics of public debt refinancing and the maturity profile of U.S. borrowing, which he links to interest expense as a driver of policy and liquidity responses.

Federal Reserve Economic Data (FRED) tracks federal interest payments as a line item of current spending, and debt interest is projected to exceed $1 trillion annually, according to the Committee for a Responsible Federal Budget.

Liquidity conditions are also central to the 90-day window, as the RSI chart range overlaps with the macro lead-lag narrative that traders are already using.

In December, the Federal Reserve lowered its policy interest rate to a range of 3.50% to 3.75% and also announced that it would purchase (plus reinvest) approximately $40 billion a month in short-term Treasury bills with the aim of calming funding pressures at the end of the year.

A roughly 90-day lagged version of global M2 liquidity is often plotted against Bitcoin to illustrate how liquidity impulses precede the re-pricing of risky assets, even though the relationship can be decoupled over time.

My analysis of the M2 correlation, adjusted to exactly 84 days, concludes that the M2 line tracks the path of Bitcoin price during the uptrend. However, in a downturn, M2 continues to rise even as prices diverge.

The flip side is that the RSI may not be able to mark a sustained low even if it remains extreme.

In effect, this turns the $180,000 path into a gated setup where confirmation is more important than the fact of an RSI breach.

Bitcoin already generates the inputs on which this argument depends. So, the mid-November RSI break and November 21 low near $80,697, $106,400 remaining and daily spot ETF flows are the clearest indicators of whether the rebound remains a rebound or extends toward the $180,000 path on the chart.

Still, analyst Caleb Franzen recently made a point worth considering.

Oversold numbers in a bull market are bullish.

Oversold numbers in a bear market are not bullish.

Meanwhile, other companies like Milk Road agree with Bittel,

“Short-term oversold signals need to be interpreted in the context of liquidity and business cycles.

If conditions continue to improve and money continues to return to the market, even if there are disruptions along the way, these oversold dips will tend to move higher over time (…) We will move higher. ”