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Bitcoin Starts Week Under Pressure But A $12K-Retest is Likely; Here’s Why

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Bitcoin has started the new week in mildly positive territory even as the US dollar continues to find fresh bids.

The benchmark cryptocurrency was up $27.43, or 0.24 percent, to trade near $11,677. Meanwhile, the US dollar index, which pits the greenback against a basket of foreign currencies, surged 0.01 percent.

Dollar Calm ahead of Jackson Hole Meeting

The steadiness in the US dollar appeared as traders awaited for further guidance from the Federal Reserve monetary policy as their top officials sit for an annual Jackson Hole meeting. The greenback surged last week on stronger-than-expected business activity and home sales.

Junichi Ishikawa, the senior foreign-exchange strategist at Tokyo-based IG Securities, called the dollar’s rise a “short-term bounce,” stating that the greenback merely retreated from its technical support against the Euro. He added the fiat would remain under pressure of falling as long as the Federal Reserve stays dovish.

“In the long term, the dollar will resume its decline because the Fed has to commit to aggressive easing for a very long time,” said Mr. Ishikawa.

Prospects of continued monetary support from the central bank have proved bullish for safe-havens so far. Gold, one of the top hedging assets, established an all-time high earlier this month as investors moved away from the US dollar, fearing its devaluation in the long-term.

Bitcoin to $12K

Bitcoin, an emerging safe-haven asset, also hit a fresh year-to-date high above $12,000 on a similar inflationary outlook. The cryptocurrency also established an uncanny negative correlation with the US dollar index, proving that a stronger BTCUSD took cues from a weaker greenback.

US dollar index bounces back after falling 10.55% from its March top. Source: TradingView.com

A renewed buying sentiment in the dollar market has eased Bitcoin’s uptrend. That, coupled with a relatively higher selling pressure above the $12,000-level, has led the cryptocurrency’s price lower. Nevertheless, it continues to hold above key technical support levels between $10,500 and $11,400.

“One thing I’ve noticed is that we seem to bounce at support when we spend this much time resting on it,” one pseudonymous trader said about Bitcoin. “For now, I’m left to assume at least a short term bounce up from this zone.”

bitcoin, btcusd, cryptocurrency, xbtusd, btcusdt

Bitcoin shows signs of sharp bounce backs. Source: TradingView.com, NebraskanGooner

The analogy fits well with what Mr. Ishikawa said about the US dollar’s rise. With that said, as long as the Federal Reserve is willing to continue its open-ended bond-buying program and to maintain its benchmark lending rate near zero, the greenback’s bias would remain bearish.

Meanwhile, the same sentiment would keep Bitcoin on the path towards $12,000-retest, followed by a breakout. Analyst Lark Davis weighed:

“The bitcoin break out has an implied target near 13,800 which is a massively key level for us to crush since it represents to top of the 2019 bear rally.”

Bitcoin was trading at $11,663 at the time of this writing.





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Bitcoin

Bitcoin may lose $30K price level if stocks tank, analysts warn

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The ghost of stock market crash is back again to haunt Bitcoin (BTC).

It happened last in March 2020. Back then, the prospect of the fast-spreading coronavirus pandemic led to lockdowns across developed and emerging economies. In turn, global stocks crashed in tandem, and Bitcoin lost half of its value in just two days.

Meanwhile, the U.S .dollar index, or DXY, which represents the greenback’s strength against a basket of top foreign currencies, has now climbed by 8.78% to 102.992, its highest level since January 2017.

The huge inverse correlation showed that investors dumped their stocks and Bitcoin holdings and sought safety in what they thought was a better haven: the greenback. 

More than a year later, Bitcoin and stock markets again wrestle with a similar bearish sentiment, this time led by a renewed demand for the U.S. dollar following the Federal Reserve’s hawkish tone.

Namely, the U.S. central bank announced Wednesday it will start hiking its benchmark interest rates by the end of 2023, a year earlier than planned.

Lower interest rates helped to pull Bitcoin and the U.S. stock market out of their bearish slumber. The benchmark cryptocurrency jumped from $3,858 in March 2020 to almost $65,000 in April 2021 as the Fed pushed lending rates to the 0%-0.25% range.

Meanwhile, the S&P 500 index rose more than 95% to 4,257.16 from its mid-March 2020 peak. Dow Jones and Nasdaq rallied similarly, as shown in the chart below.

Bitcoin, Nasdaq Composite, S&P 500, and Dow Jones rose in sync after March 2020 crash. Source: TradingView.com

And this is what happened after the Federal Reserve’s rate-hike announcement on Wednesday…

Bitcoin and the US stock market plunged after the Fed’s rate hike update. Source: TradingView.com

Meanwhile, the U.S. dollar index jumped to its two-month high, hinting at a renewed appetite for the greenback in global markets.

U.S. dollar index jumped up to 2.06% after rate hike announcement. Source: TradingView.com

Popular on-chain analyst Willy Woo said on Friday that a stock market crash coupled with a rising dollar could increase Bitcoin’s bearish outlook. 

“Some downside risk if stonks tank, a lot of rallying in the DXY (USD strength) which is typical of money moving to safety,” he explained. 

Michael Burry, the head of Scion Asset Management, also sounded the alarm on an imminent Bitcoin and stock market crash, adding that when crypto markets fall from trillions, or when meme stocks fall from billions, the Main Street losses will approach the size of countries.

“The problem with crypto, as in most things, is the leverage,” he tweeted. “If you don’t know how much leverage is in crypto, you don’t know anything about crypto.”

Burry deleted his tweets later.

Some bullish hopes

Away from the price action, Bitcoin’s adoption continues to grow, an upside catalyst that was missing during the March 2020 crash.

On Friday, CNBC reported that Goldman Sachs has started trading Bitcoin Futures with Galaxy Digital, a crypto merchant bank headed by former hedge fund tycoon Mike Novogratz. The financial news service claimed that Goldman’s call to hire Galaxy as its liquidity provider came in response to increasing pressure from its wealthy clients.

Related: Hawkish Fed comments push Bitcoin price and stocks lower again

Damien Vanderwilt, co-president of Galaxy Digital, added that the mainstream adoption would help Bitcoin lower its infamous price volatility, paving the way for institutional players to join the crypto bandwagon. Excerpts from his interview with CNBC:

“Once one bank is out there doing this, the other banks will have [fear of missing out] and they’ll get on-boarded because their clients have been asking for it.”

Earlier, other major financial and banking services, including Morgan Stanley, PayPal, and Bank of New York Mellon, also launched crypto-enabled services for their clients.

Is Bitcoin in a bear market? 

Referring to the question “are we in a bear market?” Woo said that Bitcoin adoption continues to look healthy despite the recent price drop. The analyst cited on-chain indicators to show an increasing user growth and capital injection in the Bitcoin market.

He also noted that the recent Bitcoin sell-off merely transported BTC from weak hands to strong hands. 

7-day moving average of coins moving between strong and weak hands. Source: Willy Woo

Woo reminded:

“My only concern for downside risk is if we get a major correction in equities which will pull BTC price downwards no matter what the on-chain fundamentals may suggest. Noticing USD strength on the DXY, which suggest some investors moving to safety in the USD.”