Crypto ETFs Reach Decision Point, Chart Suggests

Crypto ETFs Reach Decision Point, Chart Suggests

BITO analysis suggests things have gotten too quiet to stay in place.

Reviewed by: Staff
Edited by: Ron Day


I’m a self-proclaimed cryptocurrency novice, but that doesn’t stop me from charting it and trying to add value to my portfolio. Because in modern markets, I think investment advisors and self-directed investors alike are waking up to the idea that we may have crossed into a new era.  

In modern markets, information is everywhere, all the time. And a lot of it is deceiving. Sometimes that’s based on the source (try getting a fund manager to trash talk the asset class their lifestyle is tied to). Other times, it could just be newbies bragging about beginner’s luck.  

As information travels instantly, the biggest challenge for professional and retail investors is to find their “home base” when it comes to what inputs drive their decisions. While any investor can borrow a part of their own analysis regimen from others, ultimately it is everyone for themselves (or their chosen advisor) when it comes to final decisions.

That’s why my home base has always been technical analysis. Not the Greek alphabet-laden traditional way, but simply figuring out for myself what I think takes the riskiest outcome out of play, as often as possible. As I like to say, any ETF can go up in price at any time. The difference between them is how much risk is attached.

And, with the FOMC meeting approaching, even the potential for a snoozer might take some folks off guard if it turns out differently. What I love about charting ETFs is that it takes out the emotion, and just drills down to probabilities. So, when certain patterns in certain parts of the markets appear to me, I can make a judgement.  

Bitcoin’s Volatility Has Shrunk: Now What?

Sometimes, as in the case of ProShares Bitcoin Strategy ETF (BITO)'s chart, one of many ETFs tied to the fate of the most prominent crypto asset, that pattern’s value is not in making a buy or sell decision, but rather in seeing that an important move may be coming. Because asset classes, and thus the ETFs that aim to replicate their price movements, tend to rotate between periods of high volatility and low volatility.  

In the case of BITO, which pre-dated the deluge of new spot bitcoin ETFs that debuted in early January, it understandably moved wildly in both directions following that synchronized event. The roller coaster took its price from around $23 to $19 and up to $33, all in just nine weeks.  

But since mid-March, the trend has been down, though the bounces or rallies have been sharp. BITO traded Monday around $26.50, down about 20% the past three months, and priced right where it was in January of 2022, more than 29 months ago.  

But something more important has appeared, something I’ve seen over and over in charting for 44 years. Volatility is not just slowing, it is reaching a point that, if we looked at the chart and drew some simple lines on it, would scream, “something big may be about to happen, but I don’t know what!” The fancy technical words are wedge or triangle, but in English, it just means that after a period of frenetic activity, this normally volatile asset has chilled out for a while. And the closer it gets to the end of that shrinking triangle (“the apex” for geeks like me), the more likely it is to get more volatile again.  

ETFs Help Evaluate Risk

But in which direction? That’s for the future to tell, though I can say it's probably slightly favoring the downside. The important aspect of this is not even bitcoin specific. It's how markets increasingly move in these types of patterns, and the patterns happen faster than in past decades. That makes technical analysis relatively more important than before. And it makes ETFs the ideal “map” to follow those various market segments.  

Perhaps this is one sign that something more dramatic will occur in terms of market reaction to this week’s FOMC meeting. Or maybe it is just a bitcoin-centric issue. But as with so much in portfolio management today, citing the risks is the first step to guarding against them.  

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.