bitcoin (BTC) has risen nearly 60% to around $27,000 in 2023 amid anticipations that the Federal Reserve would halt its quantitative adjustment in the middle of the United States banking crisis. Still, BTC Price Hasn't Moved beyond $30,000 decisively.
Buying exhaustion at this key psychological level led to a price correction towards $25,000 over the past week. Interestingly, the drop has strengthened Bitcoin's correlation with several traditional financial metrics.
But does this increase the risk of Bitcoin continuing its downtrend in Q2? Let's take a closer look.
The double bottom of the US dollar index
He us dollar index (DXY), which measures the strength of the dollar against a basket of major foreign currencies, rose 1.4% to 102.70 in the week ending May 14. The rise marked the dollar's best week since September 2022.
Curiously, the rise in the dollar left behind a potential false bottom pattern, confirmed by two lows near a similar horizontal price level around 100.75. A double bottom pattern is a bullish reversal setup, which suggests that the DXY could rally towards 105.85 in the coming months.
DXY Weekly Relative Strength Index (RSI), which rebounded after hitting 35, just five points above the oversold threshold, suggests more of a bullish continuation, which usually bodes poorly for Bitcoin price.
The main reason is the strengthening of the negative weekly correlation between Bitcoin and DXYwith the coefficient around -50 as of May 14.
Earlier in the week, the latest US Consumer Price Index (CPI) report. presented headline inflation fell to 4.9% in April from 5% the previous month. However, core inflation rose to 5.5%, suggesting that core price pressures remain persistent, which has cooled for now. Fed rate cut expectations.
Bloomberg's John Authers writes:
"The odds of a 'pause' in interest rate hikes next month have now been raised to virtual certainty in the futures and swaps markets, having been 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:
โIf the Fed pauses its top rate for at least six months and the US falls into recession, then history suggests that 12-month yields after the final rate hike could be flat for Treasuries. US 10-year, while the S&P 500 could sell off... sharply."
Therefore, a sour risk appetite would be a boon for the dollar, while increasing the risk that Bitcoin fails to recover $30,000 any time soon.
Gold price near key reversal point
He gold price it has risen nearly 15% to over $2,000 an ounce amid the banking crisis. The positive correlation with Bitcoin has also strengthened with its weekly coefficient reading at 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 was instrumental in triggering a strong bearish reversal phase that sent the value of gold falling as much as 22%.
Similarly, testing the level for resistance in August 2020 preceded an 18% price drop. If the scenario repeats itself in 2023, the gold price 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 could experience a similar correction in the second quarter.
Decreases the money supply M2
M2 measures cash in circulation plus dollars in bank and money market accounts. The M2 figure rose more than 40% during the Covid-19 pandemic due to the Fed's QE, peaking at $21.84 trillion in January 2022.
Since then, it has declined to $20.81 trillion, more than 4% less than the peak, in May 2023.
A drop of more than 2% in the supply of M2, something that has happened four times to date โ is bad news for the stock market since it preceded three depressions and one panic.
In other words, the significant move lower in M2 could herald new lows for Bitcoin, which often moves alongside 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 of what appears to be a rising wedge pattern.
For technical analysts, a rising wedge It is a bearish reversal pattern that appears when the price rises further within a range defined by two contracting ascending trend lines. It resolves after the price breaks below the lower trend line, falling by as much as the maximum height of the wedge.
Related: BTC Price Bounces to Lows of $25.8K Amid Low Whale Interest Warning
If this BTC price pattern is confirmed, particularly taking into account the macro indicators mentioned above, the Bitcoin price remains at drop to as little as $15,000 in 2023, 45% less than current price levels.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
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