Bitcoin ETF investors face $2 billion in losses, what should ordinary investors do?

At present, the two major uncertainties in the market are the Federal Reserve’s actions in September and the outcome of the US presidential election.

Over the next two weeks, (traditional) financial markets are likely to remain on the sidelines as the Federal Reserve enters a quiet period (before policy announcements).

On the other hand, Bitcoin is testing its technical support level. (Note from Odaily Planet Daily: According to the chart information, 10x Research believes that the technical support level of Bitcoin price is around $49,100-52,599.)

We expect the Fed to cut rates by 50 basis points to stay ahead of economic fluctuations, as a 25 basis point rate cut may still not be enough to avoid greater damage to the economic situation, given the lagged effects of monetary policy in subsequent quarters.

While a 50bp rate cut by the Fed may signal deeper concerns to the market, the Fed’s primary focus is on mitigating economic risks rather than managing market reactions. This is despite the 29% probability of a 50bp rate cut, which is clearly contrary to our view and general consensus. There is a growing consensus that the Fed is behind the times — ignoring signs of labor market weakness after being caught off guard by various market data in July.

In the political sphere, election predictions from prediction market Polymarket show Trump with a 51% chance of winning the election, while Kamala Harris has a 46% chance. Well-known political commentator Nate Silver also gave a corresponding ratio: Trump has a 63.8% chance of winning; in contrast, Harris has a 36% chance of winning, which marks another new high for Trump. The main reason for these predictions is the Democratic National Convention, where Harris reiterated her commitment to a high-tax policy agenda.

However, Alan Lichtman, who has accurately predicted the results of 9 of the past 10 presidential elections using the "13 Keys" method, currently predicts that Harris will win this year's presidential election because in his model, Harris holds 8 of the 13 keys (equivalent to an 8/13 probability of winning).

The Harris vs. Trump presidential debate on Tuesday, September 10, is expected to provide a clearer picture of the race. Harris has so far avoided extensive media exposure, relying on favorable media coverage rather than directly engaging with voters, an approach that gives the impression that the Democratic leadership is orchestrating her campaign and shaping the narrative, rather than Harris herself. Despite the coordinated efforts of certain establishment forces behind the campaign, we still favor a Trump win, just as we predicted in 2016.

The U.S. CPI report released the day after the election debate will be more important than ever. Currently, the market is expecting a significant drop from 2.9% to 2.6%, which could provide a good reason for the Fed to cut rates by 50 basis points. With current Fed rates ranging from 5.25% to 5.50%, and monetary policy above 3.0% generally considered tight, the range of interest rate adjustments could be about 200 basis points higher. This view is somewhat confirmed by the yield on the 2-year Treasury note - a 160 basis point rate cut is expected. Unless CPI data remains at 2.9% or higher, we expect a 50 bps rate cut.

Translated with DeepL.com (free version)Previously, the market had generally expected six rate cuts in 2024; however, at the FOMC meeting in March this year, Fed Chairman Powell emphasized that a more flexible approach to rate cuts was needed because of the continued uncertainty in economic development, especially after mixed inflation data and signs of slowing economic growth. At the same time, he himself acknowledged the difficulty of reaching the Fed's 2% inflation target. Bitcoin reached a price high when the March CPI data was higher than expected, but fell sharply after the March FOMC meeting, highlighting the critical importance of the next ten days.

Bitcoin spot ETF inflows lost momentum after the March FOMC meeting. Although inflows recovered in May and July, the average ETF entry price remains close to $60,000. $17 billion in inflows face a $2 billion loss (currently BTC price is around $53,000). This week, the US presidential debate may help alleviate some election-related uncertainty, but on the other hand, the FOMC meeting may increase uncertainty - as the Fed may emphasize concerns about downside risks to the economy after the recent downward revision of labor market data.

After last week's sharp drop, Bitcoin is attempting to rebound. Two of the three reversal indicators have recovered from deeply oversold levels, further indicating the potential for a short-term rebound and counter-trend rally. The last three times in history when the stochastic indicators reached similar levels, Bitcoin reached relative lows.

Given the current technical analysis, it might be more advantageous to open new short positions at higher levels.

A tactical approach for reference is to close short positions and wait for Bitcoin to approach the $58,000 level, especially before the "Harris VS Trump debate" when market traders may be generally optimistic about a "Trump victory."

After falling below the $56,000 support level, Bitcoin dropped to precisely $52,600, the February 2024 high price, establishing a medium-strength support zone. In February, Bitcoin rebounded at the end of the month, after which MicroStrategy purchased 3,000 BTC and again acquired 21,000 BTC by mid-March, marking the peak high of the price rebound.

Tactical long positions based on a short-term technical reversal before Tuesday’s presidential debate should use $52,600 as a stop loss. The next support level is $49,100, which is the price high when the Bitcoin spot ETF was launched in January and also triggered a reversal of Bitcoin’s decline in early August.

It is worth noting that while these may only be temporary rallies, they may provide tactical long term trading opportunities. Lower CPI data may also provide a temporary boost to long forces. However, with the FOMC meeting expected to spark more uncertainty next week, and the US election outcome remaining more uncertain after a surge of optimism over a possible Trump victory (as the election debate got underway on Tuesday), Bitcoin may continue to look for stronger support levels to initiate a more significant rally before the end of the year.

In summary, the three major uncertainties - the US presidential election, CPI data report and the Federal Reserve FOMC meeting - may increase volatility, but tactical traders can still use this uncertainty to profit.