Are the stars aligning for a Bitcoin breakout?

Bitcoin surged 5% last week, putting gains across the two weeks at 15%. BTC/USD reached a peak of 64.7k and has eased back slightly to 63.5k at the time of writing. 

Bitcoin and other risk assets have recovered from the September lows. Bitcoin has rallied 17% from the September nadir, with bulls eyeing 65k as the near-term hurdle to further gains. A rise above here and the 200 SMA could pave the way for a bull run. 

There are several factors supporting gains in Bitcoin. Firstly, the Fed. The risk in the crypto mood and the recent rally comes as the Federal Reserve cut interest rates for the first time in four years and signaled further rate cuts were coming. The outsized 50 basis point cut, combined with soothing comments regarding the health of the US economy, has spurred risk appetite. Bitcoin and risk assets often perform well in low interest-rate environments as there is more liquidity. 

Q4 seasonality could also support the Bitcoin rally. While September is typically a bearish month for Bitcoin, the same isn’t true for Q4. Historically, data points to a strong performance by cryptocurrencies in the final quarter of the year. According to data from Coinglass, Q4 has seen average returns of 98% over the past 12 years. 

Bitcoin is approaching the end of the re-accumulation phase in the 4-year cycle and is fast approaching the bull market stage that traditionally sees the largest gains. The timing of the Fed starting its rate-cutting cycle, positive Q4 seasonality, and Bitcoin approaching the bullish stage in its cycle appears to show the stars are aligning for a breakout.  

What do the technicals say? The 200 SMA test 

Bitcoin is again testing the 200 SMA resistance, marking the third test of this key resistance since August. The first test in early August sent BTC/USD rebounding lower. A second attempt to surpass the 200 SMA failed in late August. Now, BTC/USD is testing the hurdle again. 

A successful breakout above this level could signal a bullish shift and mark a crucial turning point in the cryptocurrency outlook, paving the way for a potential bull run. 

Risks to the bull case 

Of course, there are risks that could change Bitcoin's outlook. One of those risks is the prospect of a hard landing for the US economy. On the occasions when US data has been significantly weaker than expected (July non-farm payroll report and August manufacturing PMI), the market has reacted with a sharp selloff. Should macro data deteriorate, raising concerns of a recession, under this scenario, BTC/USD could reverse sharply lower. 

Given that investment banks are pricing in the probability of a US recession at between 20% and 35%, depending on the bank, this isn’t the base-case scenario. 

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