Are Bitcoin ETFs Breaking Rules of Technical Charts?

Computer screens are suggesting a pullback; these funds will show if they have "crypto-might."

Reviewed by: Staff
Edited by: Ron Day

We're about to reach the 10-week mark in the lifespan of the spot ETFs to track that modern version of money, and, as a 44-year chartist of stocks and funds, I find myself puzzling over this:

Is bitcoin breaking all of the rules of technical analysis, or does what appears to be a warning sign carry weight here as it would for other ETFs and stocks?

The iShares Bitcoin Trust ETF (IBIT) and its many new peers have moved in lock step since they started trading on Jan. 11. After a price dip some predicted as a “sell the news” and transition from non-spot Bitcoin ETFs ensued, IBIT and its new “frenemies” rallied furiously. Their 43% return since listing is about triple that of the Roundhill Magnificent Seven ETF (MAGS) which tracks the other glamour ETF segment of 2024 so far.

Trying to assess whether Bitcoin will move by 10% or more in either direction is a potentially futile exercise. But I like a challenge, and I suspect my advisor brethren (I was one for 27 years before selling my practice in 2020), like a challenge too. Because risk-management in a go-go investment era like the current one is not about predicting what will happen, but allowing for the possibility that what goes up can also go down. And go down hard.

Using Technical Analysis to Analyze Bitcoin 

So, when I look at the chart of the ProShares Bitcoin Strategy ETF (BITO), which I’ve found to be a good proxy for the new bitcoin ETFs, but with a longer track record to chart (BITO debuted during the latter part of 2021), I can apply normal technical analysis to a not-so-normal asset class, cryptocurrency. 

When I do, I see that it’s recent peeling back from spike move to all-time highs that started just recently, in early February, and produced a whopping 70% gain in Bitcoin ETFs like IBIT and BITO.

On Monday, BITO and its peers broke what chartists refer to as a trend line, obviously an upward one in this case. Advisors realize that with an asset this volatile, that signal could be reversed in a day. This is not like charting “normal” ETFs whose underlying assets are stocks, which are business. This is bitcoin, which when you hold it…oh wait, you can’t hold it. 

What’s Not to Like? Maybe The Bitcoin Chart

So, the broken trendline I’m describing, using a chart of daily prices, is along the same lines (technical analysis pun there) that we saw in late 2023, when a 30% gain quickly transitioned to a 15% drop. Or, during the summer of 2022, when a 25% surge in bitcoin’s price turned around and was followed by a 35% drop. And earlier that year, in the spring of 2022, BITO saw a 25% gain followed by a 40% plunge. In all these cases, a similar chart pattern existed to what I see today. 

Technical analysis of ETFs is part science and part art. And when bitcoin ETFs are the subject, the canvas for that art can be quite complex. But stripping out a lot of the advanced jargon, the abrupt about-face in bitcoin ETF prices we just saw could be a fake out, but it is enough of a repeated pattern that advisors should at least keep an eye on it.

And for those advisors who see the investing part of their business as a truly “all-weather” pursuit, there’s another side to bitcoin, so to speak. The ProShares Short Bitcoin Strategy ETF (BITI) aims to do the opposite of what bitcoin ETFs do, as evidenced by its quick 10% rally off it’s recent low. 

Rob Isbitts was an investment advisor for 27 years before selling his practice to focus on ETF research and education. He is based in Weston, Florida. Contact him at  [email protected] and follow him on LinkedIn.