The Bitcoin (BTCUSD) has bounced back from its lowest level in January as investors moved to buy the dips. It is trading at $38,610, which is about 17% above the lowest level in January this year. According to CoinGecko, its market capitalization has bounced back to about $732 billion.
Bitcoin and stocks correlation
The performance of the Bitcoin price has correlated with that of other assets like stocks. For example, the tech-heavy Nasdaq 100 index declined to a low of $13,740 in January. That drop was about 18% from where it started the year. Now, the index has also pared back some of those losses by about 9.42%. The same is true with other American indices like the Dow Jones and the S&P 500 index.
Analysts attribute this correlation to monetary and fiscal policy issues. In the United States, the Fed has started ending its monetary support. In its meeting held last week, the Fed decided to cut the number of asset purchases for the third month in a row. Most importantly, the bank warned that it would get aggressive when it comes to hiking interest rates this year.
The same sentiment continued during the past weekend. In a statement, Raphael Bostic, the President and CEO of Bank of Atlanta, said that the size of interest rate hikes would likely be bigger than expected. He mentioned that the bank could implement a series of 50 basis point increases.
Bitcoin price does well in a period of low-interest rates, which explains why the price jumped from less than $10,000 in March 2020 to almost $70,000 in November 2021.
There are fiscal reasons why the BTCUSD pair has declined as well. In the past two years, the US government has provided trillions of dollars worth of stimulus to the economy. Last year alone, it provided checks worth about $2,000 to most Americans. Some of these funds went to buy cryptocurrencies.
This year, Joe Biden’s plans to provide trillions worth of indirect stimulus have failed. He proposed a social spending package worth over $3 trillion, but he has lacked the votes needed to pass the bill.
Therefore, this being an election year in the US, there is a likelihood that the deadlock will continue in Washington.
Catalysts for Bitcoin prices
While the Bitcoin price has struggled in the past few months, there are several catalysts that could push its price higher in the coming months.
First, there is the concept of the new normal. It simply means that investors will adapt to the new market conditions. For example, analysts already expect that the Fed will hike interest rates this year. This is even evidenced by the performance of the bond market.
Therefore, there is a possibility that the BTCUSD pair will keep rising when the Fed starts hiking rates in March.
Second, regulations in the cryptocurrencies industry could lead to higher prices. In the past few months, there have been concerns about regulators. For example, in a statement in January, the Russian central bank said that the government should ban cryptocurrencies. The Finance minister then argued that the government should focus on regulations instead of a complete ban.
In the United States, the Securities and Exchange Commission (SEC) is coming up with regulations. It is doing that by consulting with a wide group of stakeholders in the industry.
Therefore, a well-regulated cryptocurrency industry will push more institutional investors to jump in. In the past, some of the biggest investors like Citadel and Vanguard have said that they avoid Bitcoin because of regulatory concerns.
Finally, on-chain data remain supportive of a BTCUSD price rebound. The numbers show that beneath the surface, the volume of Bitcoin being traded and used has held steady. For example, the number of non-zero accounts has jumped to an all-time high.
Similarly, other numbers like the Bitcoin hash rate has also performed well in the past few months. A high hash rate means that more computing power is needed to verify transactions. The rate rises when there is a significant number of transactions. Mining difficulty has also jumped.
Turning to the weekly chart, we see that the BTCUSD pair has been in a bearish trend in the past few months. It has dropped by about 44% from its all-time high. A closer look shows that the pair has formed what looks like a double-top pattern, whose chin is currently at the 61.8% Fibonacci retracement level at $28,325. A double-top pattern is usually a bearish signal.
The Bitcoin price has moved below the 50-week moving average. It has found support at the 100-day EMA. Therefore, while a contrarian case can be made using fundamental analysis, technicals seem a bit bearish. As such, there is a possibility that the BTCUSD sell-off will continue before the situation gets better.