Bitcoin (BTC) has made a rebound since last week, trading close to $27,800, a 7.5% increase from its low of under $25,900. Despite this recovery, the cryptocurrency remains on track for its first monthly loss since December, down approximately 5% for the month. Bitcoin has typically seen positive performance in the beginning months of the year, having flat results only in February. In contrast, when measured against ether (ETH), bitcoin is poised for an almost 7% monthly decline.
The lackluster monthly performance comes as bond traders have reestablished expectations for the Federal Reserve (Fed) to maintain elevated interest rates due to persistent inflation and a strong labor market. Previously, interest rate traders anticipated the Fed funds rate to drop to 4.5% or lower by the end of 2023. However, any rate cuts are no longer expected for this year.
This shift in expectations has buoyed the US dollar, which managed to gain 2.7% against a range of fiat currencies this month. In response, bitcoin typically moves in the opposite direction of the dollar. Additionally, capital has been steadily flowing out of the crypto market since early last year, with the stablecoin market capitalization falling to a 20-month low of $130 billion this month.
Noting that the tech sector typically has some correlation with BTC, Markus Thielen, head of research and strategy at Matrixport, believes the market needs a new driver for bitcoin’s price to rise. The recent surge in AI and Chat GPT technology has not yet impacted bitcoin’s performance.
Furthermore, Griffin Ardern of Blofin suggests that the high-interest rate environment will continue to hinder bitcoin bulls. High risk-free returns, such as money market funds, may prove more attractive to investors, causing a persistent lack of liquidity in the crypto market.
Dick Lo, founder and CEO of TDX, considers that bitcoin’s recent 4% rise was a relief rally triggered by the provision deal for the $31.4 trillion debt limit. Any further gains may be difficult, as speculation around 25 basis points interest rate hikes and potential liquidity drain weigh on risk assets.
According to Lo, bitcoin faces strong resistance at $28,500, with initial support being seen at $27,350.
Source: Coindesk
