In November 2024, Bitcoin broke out above a massive technical resistance level.
After consolidating above it for a few months, price failed to hold the breakout and Bitcoin crashed back below that level.
In technical analysis, this is what you call a false breakout.
This is giving many investors flashbacks to 2021, when Bitcoin broke out above $61,000 in October, only to fall back below it a month later.
Back then, this false breakout pattern ultimately led to an 80% decline over the next year.
Today, there are similarities between these events, but also key differences.
The President of the United States has just declared that the government will be creating a strategic crypto government reserve that will include Bitcoin.
This marks a major turning point for Bitcoin’s future.
Despite this announcement, Bitcoin is falling precipitously.
So is this strategic reserve news a “sell the news” event following a false breakout, or are we setting up for a bottom before another leg higher?
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What The Strategic Reserve Could Mean
Does a Bitcoin strategic reserve actually mean anything for Bitcoin’s price?
The United States strategic gold reserves amount to approximately $748 billion.
Bitcoin’s market cap is around $1.6 trillion.
If the government develops a similar strategic reserve to the one it has for gold, that could lead to around a 50% increase in Bitcoin’s price.
But keep in mind that between September 2024 (before the election) and December 2024 (after Trump’s victory), Bitcoin rose by 94%.
This was when rumors of a strategic reserve were already circulating.
It’s possible much of this narrative was already priced in during the run-up.
However, we believe this strategic reserve announcement has more significance than people think and could set up Bitcoin for another major leg higher in 2025.
The United States government isn’t the only one with strategic reserves.
International gold reserves total about $2 trillion, which exceeds Bitcoin’s current market cap.
Additionally, having the US government own Bitcoin adds credibility and confidence to an asset class that is entirely based on credibility and confidence.
The Institutional Adoption Pattern
Bitcoin’s run-up since December 2022 has been built on institutional investors adopting it as a new asset class.
The launch of the Bitcoin ETF in November sparked immediate optimism, and Bitcoin is still up about 85% since the ETF’s launch.
To us, this adoption pattern is similar to gold’s path in the early 2000s.
The first US gold ETF launched in November 2004, marking the beginning of a major bull market that saw gold rise by about 400%.
But this didn’t happen overnight…
Gold’s rise was gradual with multiple pullbacks along the way.
When we overlay gold’s 2000s bull market on Bitcoin’s current run, the two look remarkably similar.
Although this pullback might look dangerous and feel painful for overextended traders, it doesn’t necessarily derail the institutional adoption theme.
So, is this dip a buying opportunity?
One way to gauge Bitcoin’s health is by tracking activity on its network – the number of transactions being made.
Historically, the number of transactions and Bitcoin’s price have been naturally interconnected.
Between early 2023 and late 2024, rising network activity accompanied price increases.
More recently, however, activity has dropped, potentially contributing to the recent correction.
If we’re betting long on Bitcoin today, we want to see network activity pick up again.
The strategic reserve announcement could potentially reignite interest, similar to how the Bitcoin ETF launch sparked network activity.
Technical Outlook
Despite the false breakout, we remain quite bullish on Bitcoin in 2025 from a fundamental standpoint.
As traders, however, we cannot disregard price action, and we’ve indeed seen a major technical breakdown.
Right now, Bitcoin is at a crossroads, testing a key upward trend line and the 200-day moving average.
This has acted as support throughout the ongoing bull market.
Breaking below the support zone opens the door for Bitcoin to fall back to $60,000.
However, if it manages to break back above $95,000, that would put price in a strong technical posture and potentially resume the bull market.
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