4 Alarming Charts for Bitcoin Bulls as $27K Becomes a Formidable Obstacle
Bitcoin (BTC) has surged nearly 60% to around $27,000 in 2023 amid expectations that the Federal Reserve will halt its quantitative easing amid the US banking crisis. Still, the BTC price has failed to move above $30,000 decisively.
Buying exhaustion at this important psychological level led to a price correction towards $25,000 this past week. Interestingly, the decline has strengthened Bitcoin’s correlation with several traditional financial metrics.
But does this increase the risk of Bitcoin continuing its downward trend in Q2? Let’s take a closer look.
The US dollar index’s double bottom
The U.S. dollar index ( DXY ), which measures the greenback’s strength against a basket of top foreign currencies, rose 1.4% to 102.70 in the week ended May 14. The gain marked the dollar’s best week since September 2022.
Interestingly, the dollar rally left a potential double bottom pattern, confirmed by two lows near a similar horizontal price level around 100.75. A double bottom pattern is a bullish reversal setup, suggesting that DXY could rally towards 105.85 in the coming months.
DXY’s weekly Relative Strength Index (RSI), which has been recovering after reaching 35 – just five points above the oversold threshold – suggests another bullish continuation, which is usually a bad sign for Bitcoin’s price.
The main reason is the strengthening negative weekly correlation between Bitcoin and DXY, with the coefficient around -50 as of May 14.
Earlier this week, the latest US Consumer Price Index (CPI) report showed that headline inflation fell to 4.9% in April from the previous month’s 5%. However, core inflation rose by 5.5%, suggesting that underlying price pressures remain volatile, which has for the time being cooled expectations of a Fed rate cut.
John Authers from Bloomberg writes:
“The odds of a ‘pause’ in rate hikes next month have now risen to virtual certainty in futures and swaps markets, after being seen as an 84% chance before the numbers came out.
A Fed pause should result in a stabilizing bond market. History indicates that stable interest rates have been good for US Treasuries but bad for stocks, with Pimco’s Erin Browne and Emmanuel Sharef saying:
“If the Fed holds off on peak interest rates for at least six months and the U.S. enters recession, history suggests that 12-month yields after the last rate hike could be flat for 10-year U.S. Treasuries, while the S&P 500 could sell off sharply.”
Thus, a diminished risk appetite would be a boon for the dollar, while increasing the risk of Bitcoin failing to regain $30,000 in the near term.
Gold price close to key turning point
The price of gold has risen almost 15% to over $2,000 an ounce amid the banking crisis. The positive correlation with Bitcoin has also grown stronger with its weekly coefficient reading of 0.82 as of May 14.
But the gold rally has brought the price to a notorious horizontal resistance level near $2,075. In March 2022, this level was instrumental in triggering a strong bearish reversal phase that drove gold’s value down by up to 22%.
Likewise, testing of the level as resistance in August 2020 preceded an 18% price decline. Should the scenario repeat itself in 2023, the price of gold could fall towards its 50-week exponential moving average (50-week EMA; the red wave) near $1,850.
Gold’s weekly RSI, hovering around its overbought reading of 70, indicates a similar downside scenario. As a result of the precious metal’s positive correlation with Bitcoin, the latter may see a similar correction in Q2.
The M2 money supply decreases
M2 measures cash in circulation plus dollars in bank and money market accounts. The M2 figure rose by more than 40% during the Covid-19 pandemic due to the Fed’s quantitative easing, peaking at $21.84 trillion in January 2022.
It has since fallen to $20.81 trillion, down over 4% from its May 2023 peak.
A 2% plus drop in M2 supply – which has happened four times to date – is bad news for the stock market since it preceded three depressions and a panic.
In other words, the significant decline in M2 could herald new lows for Bitcoin, which often 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 its potential breakout point from what appears to be an ascending wedge pattern.
For technical analysts, a rising wedge is a bearish reversal pattern that appears when price rises higher within a range defined by two contracting, rising trend lines. It resolves after price breaks below the lower trend line, falling by as much as the maximum wedge height.
Related: BTC price bounces to $25.8K slump amid warning of low whale interest
If this BTC price pattern is confirmed, especially given the above macro indicators, Bitcoin price will drop to as low as $15,000 in 2023, down about 45% from current price levels.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.
