Bitcoin Slides Closer to Yearly Low
After reaching a multi-year low in July, Bitcoin has been trending lower, moving closer to the bottom of the range it has created since then.
Bitcoin trends lower moving towards the bottom of a range created in July when the cryptocurrency scored a multi-year low at $17,600. Now, BTC seems poised for further losses on low timeframes as macro forces remain in control of global markets. The bearish case for Bitcoin seems to be gaining strength in the short-term as the cryptocurrency approaches the bottom of its recent range.
It is clear that the cryptocurrency market is in a period of consolidation after the massive rally seen in the last few weeks. Bitcoin, the largest cryptocurrency by market capitalization, is currently trading at around $19,000, down 1% and 3% in the last 24 hours and 7 days respectively. Other major cryptocurrencies are also seeing similar price action, with many giving back their gains from the last few days. However, XRP appears to be bucking the trend and is still in positive territory.
Bitcoin is caught in the middle of global macro forces.
The recent successful completion of the Ethereum "Merge" from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus means that the sector has now lost its final bullish narrative. With no positive catalysts on the horizon, macroeconomic factors are now the only thing exerting any influence on the market. QCP Capital's trading desk expects this to result in more sideways trading in the near-term, with a bearish bias over the longer term.
It is becoming increasingly clear that cryptocurrencies are beginning to correlate more and more with traditional assets, and are moving in tandem with global economic forces. This is evident in the recent price movements of Bitcoin and Ethereum, which have both been influenced by the upcoming Consumer Price Index (CPI) print for September. It is likely that this print will put additional selling pressure on BTC's price, as investors begin to worry about the potential inflationary effects of the upcoming data release.
The Fed's efforts to combat inflation are having a negative effect on the value of most assets, except for the US dollar. QCP Capital wrote that this is causing "significant pain" for investors. The firm recommends that investors diversify their portfolios and avoid putting all their eggs in one basket.
USD continues to remain bid, as real returns on dollar outperforms every other asset class YTD. Commodities and Precious Metals showing grim figures (…). Amalgamation of global macro sentiment has driven correlations across assets back to extremes. BTC correlation with equities and gold (positively correlated) at all-time highs (…).
The upcoming September CPI print will be a key indicator of the current macroeconomic situation. If inflation continues to trend upward, it could mean that the attempts by the central bank to stimulate the economy have been unsuccessful. This would be a cause for concern, and QCP Capital believes that Thursday's CPI report will be closely watched by investors.
In that regard, all eyes are on the Fed and by extension on CPI print this Thursday, where uncertainty remains high. Sell-side economists are predicting a rise of approximately 0.4% m/m and 6.5% y/y in core CPI, carried by strong shelter inflation.
If the Fed hikes interest rates, it could cause Bitcoin to trend lower in the short term. QCP Capital views the strong demand in the U.S. job market as a potential negative, as it contributes to inflation and encourages the Fed to keep interest rates tight.
Bitcoin whales are selling off, and prices could drop further.
The Fed is already being pressured by U.S. allies to stop their interest rate hike program but to no avail. However, this pressure might contribute to a shift in the financial institution's stance over the long run. This could eventually lead to the Fed lowering interest rates, which would be good news for the economy.
While the economic situation remains at extreme levels, Bitcoin's upside potential will continue to be limited. In short timeframes, data from Material Indicators shows an increase in selling orders from investors with ask orders of between $100,000 to $1 million. This indicates that investors are losing confidence in Bitcoin's ability to provide returns in the current market environment.
It seems clear that the market is not yet ready to return to its previous highs. Any attempts to do so will likely be met with rejection, as we have seen in recent weeks. This trend looks set to continue for the foreseeable future.
#FireCharts CVD shows that historically, Whales (purple) with $100k-$1M market orders have had more influence on #Bitcoin price than Mega Whales (brown) with $1M-$10M market orders. Keep that in mind when you are trying to swim with the pod. pic.twitter.com/eVCqM5UTWo
— Material Indicators (@MI_Algos) October 11, 2022