It’s one of the fundamental principles of classical physics.
Simply put, it means an object won’t change its motion unless an external force impacts it.
Today I’ll explain why inertia is a powerful investment strategy…
When a trend is in motion, it’s like a runaway freight train. It often takes titanic forces to cause a major trend to reverse.
For example, consider the historic collapse in bond prices. By the end of the year, 10-year Treasury bonds will have been down three years in a row.
This has never happened before in the entire history of the United States.
The force behind this collapse was the Fed’s equally historic interest rate hiking policy. Powell’s Federal Reserve raised rates from near 0% to 5.25% in a year and a half.
This same policy crushed stocks in 2022. It also wasn’t very kind to Bitcoin, which dropped nearly 70% as the Fed started its first rate hikes.
But now, things are changing. Last Wednesday marked the second time in a row that the Fed hasn’t raised interest rates.
And while it’s still very early, the market is betting that the Fed’s rate hikes are now over.
Lower interest rates will give investors an incentive to put their cash to work. And while stocks and bonds will benefit from this, so will Bitcoin.
Eventually, Bitcoin will go back to its previous all-time closing high of $65,000. But before reaching $65,000, Bitcoin has to break out of its current trend channel first.
Take a look at the chart of Bitcoin below (blue lines)…
Notice how Bitcoin has broken above the 20-, 50-, and 200-period moving averages. These represent the short-, intermediate-, and long-term trends within the market.
Breaking above those moving averages is a crucial step to establishing a long-lasting uptrend.
And now that the Fed is giving investors a great reason to deploy any cash they might be sitting on, we could see a fierce rally in Bitcoin.
The next immediate objective for Bitcoin bulls is to take prices out of that trend channel drawn on the chart. Doing so will result in what I call “escape velocity.”
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That’s when a market starts trading sharply higher. And it almost always occurs after a trend channel breakout.
I’ll be keeping a very close watch on Bitcoin’s trend channel. If we take it out, look for an update here in Market Minute because what happens next will be exciting.
Bitcoin has been making moves, are you watching?
Let us know your thoughts – and any questions you have – at [email protected].