The cryptocurrency market has been buzzing with excitement as Bitcoin (BTC) rallied nearly 60% to around $27,000 in 2023. The rally was fueled by expectations that the Federal Reserve would pause its quantitative tightening amid the U.S. banking crisis. However, the surge in BTC price has not been able to decisively move past the $30,000 mark. This buying exhaustion triggered a price correction, causing BTC to dip to around $25,000 in the past week. Curiously, this decline has also increased Bitcoin’s correlation with several traditional financial metrics, prompting many to wonder if this increases the risk of continued downtrend in Q2.
Among the traditional financial metrics that Bitcoin’s price seems to be aligning with is the U.S. dollar index (DXY), which measures the strength of the greenback against a basket of foreign currencies. The DXY recently rose by 1.4%, marking its best week since September 2022, leaving behind a potential double bottom pattern; a bullish reversal setup suggesting the DXY could rise toward 105.85 in the next few months.
A rising dollar often spells trouble for Bitcoin prices, as the negative weekly correlation between the two has been strengthening. Additionally, recent inflation data has caused cooling down of the Fed’s rate cut expectations, leading to the likelihood of a stabilizing bond market. However, historical data suggests that stable interest rates have been favorable for U.S. Treasuries but unfavorable for stocks. This could cause Bitcoin’s prospects for reclaiming the $30,000 mark in the short term to dwindle.
Another significant correlation concerns the price of gold, which has surged nearly 15% to over $2,000 an ounce amid the banking crisis. Bitcoin has also displayed a growing positive correlation with the precious metal. However, gold’s rally has brought its price to a critical resistance level near $2,075. In the past, this level has triggered a bearish reversal phase, which could cause gold’s price to fall toward its 50-week exponential moving average (50-week EMA) near $1,850. With its positive correlation to Bitcoin, this may signal a similar correction for the cryptocurrency in Q2.
Furthermore, a recent decline in the M2 money supply, which measures cash in circulation as well as dollars in bank and money-market accounts, could foreshadow new lows for Bitcoin. The M2 supply previously increased by over 40% during the Covid-19 pandemic and has since dropped to $20.81 trillion. Historically, significant drops in M2 supply have resulted in economic downturns and have been bad news for stock markets, which often move in tandem with Bitcoin.
Finally, Bitcoin appears to be headed towards the $15,000-$20,000 price range with the formation of a potentially bearish pattern called the “rising wedge.” If this pattern is validated, Bitcoin’s price could decline as low as $15,000 in 2023 – a 45% drop from current levels.
In conclusion, while the rally in Bitcoin’s price has been a subject of excitement for many crypto enthusiasts, various financial metrics and historical trends suggest that the cryptocurrency could still face a downtrend in the coming months. Investors and traders should remain cautious and conduct thorough research before making any decisions in this ever-evolving market.
Source: Cointelegraph
