Bitcoin (BTC) surged nearly 60% to around $27,000 in 2023 amid expectations that the Federal Reserve would halt its quantitative tightening amid the US banking crisis. Despite this, the value of BTC didn’t definitely exceed the extent of USD 30,000.
Buyer exhaustion at this key psychological level has led to a price correction towards $25,000 over the past week. Interestingly, the drop strengthened Bitcoin’s correlation with several traditional financial indicators.
But does that increase the danger that Bitcoin will proceed its downtrend in Q2? Let’s take a more in-depth look.
US dollar index double bottom
The US Dollar Index (DXY), which measures the strength of the dollar against a basket of major foreign exchange, rose 1.4% to 102.70 within the week ending May 14. The gain was the most effective week for the dollar since September 2022.
Interestingly, the dollar’s rally left behind a possible double bottom pattern, confirmed by two lows near an identical horizontal price level of around 100.75. The double bottom pattern is a bullish reversal setup, suggesting that DXY could move up towards 105.85 over the subsequent few months.
The weekly DXY Relative Strength Index (RSI), which rebounded after reaching 35 – just five points above the oversold threshold – further points to a bullish continuation, which is generally a nasty omen for the Bitcoin price.
The important reason is the strengthening negative weekly correlation between Bitcoin and DXY, with an element of around -50 as of May 14.
Earlier this week, the most recent US Consumer Price Index (CPI) report showed that headline inflation fell to 4.9% in April from 5% within the previous month. However, core inflation rose 5.5%, suggesting that underlying price pressures remain sticky, which has cooled the Fed’s rate cut expectations in the intervening time.
John Authers of Bloomberg I’m writing:
“The odds of a ‘pause’ for rate of interest hikes next month have now risen to a virtual certainty within the futures and swap markets as they were seen as an 84% likelihood before the numbers got here out.”
The Fed’s pause should end in stabilization of the bond market. History indicates that stable rates of interest were good for US Treasuries but bad for stocks, with Pimco’s Erin Browne and Emmanuel Sharef saying:
“If the Fed stays at its maximum rate for at the least six months and the US falls into recession, history suggests that the 12-month returns after the ultimate rate hike might be flat for 10-year US Treasuries while the S&P 500 could sell sharply.”
So a drop in risk appetite could be a boon for the dollar while increasing the danger that Bitcoin is not going to get well $30,000 within the short term.
Gold price near a key turning point
The price of gold rose nearly 15% to over $2,000 an oz. consequently of the banking crisis. The positive correlation with Bitcoin has also strengthened with a weekly coefficient reading of 0.82 as of May 14.
But gold’s rally has pushed its price to an infamous horizontal resistance level near $2,075. In March 2022, this level played a key role in triggering a pointy reversal phase that led to gold falling by as much as 22%.
Similarly, testing the extent as resistance in August 2020 was preceded by an 18% price drop. If the scenario repeats itself in 2023, the value of gold could fall towards a 50-week exponential moving average (50-week EMA; red wave) near $1,850.
The weekly gold RSI hovering across the overbought reading of 70 points to an identical downside scenario. As a results of the positive correlation of this precious metal with Bitcoin, the latter might even see an identical correction in Q2.
M2 money supply decreases
M2 measures money in circulation plus dollars in bank accounts and money market accounts. The value of M2 increased by greater than 40% throughout the Covid-19 pandemic resulting from the Fed’s quantitative easing, peaking at $21.84 trillion in January 2022.
It has since fallen to $20.81 trillion, down greater than 4% from its peak in May 2023.
More than 2% drop in M2 supply – something that happened 4 times up to now — is bad news for the stock market, because it was preceded by three depressions and one panic.
In other words, a big drop in M2 could herald recent lows for Bitcoin, which frequently moves in tandem with US stock indices.
Currently, the weekly correlation coefficient between Bitcoin and the Nasdaq-100 index is 0.92.
Bitcoin Price ‘Rising Wedge’
Bitcoin appears to be heading towards the $15,000-20,000 price range, depending on the potential breakout point from what appears to be an ascending wedge pattern.
For technical analysts, a rising wedge is a bearish reversal pattern that happens when price moves higher throughout the range defined by the 2 contracting, ascending trend lines. It resolves after the value breaks below the lower trendline, falling all of the technique to the utmost height of the wedge.
Related: BTC Price Rebounds From Low of $25.8K on Low Whale Interest Alert
If this BTC price pattern is confirmed, especially considering the aforementioned macro metrics, the value of Bitcoin will drop to simply $15,000 in 2023, a drop of around 45% from current price levels.
This article doesn’t contain investment advice or recommendations. Every investment and trading move involves risk and readers should do their very own research when making decisions.
