Is there anything that can save Bitcoin from a stock market crash? This week, not everyone is bearish. Bitcoin (BTC) is off to a stuttering start in the second week of April, as bulls fight to maintain support above $40,000.
The current weekly close saw market worries resurface, and BTC/USD dropped in traditional form in the final hours of Sunday, following a refreshingly low-volatility weekend. The average hodler today feels trapped between two stools: macro forces promise huge trend shifts but are sluggish to materialise, and “real” buyer demand is likewise missing from cryptoassets in general. Those on the inside, on the other hand, show no signs of scepticism, as indicated by all-time high Bitcoin network fundamentals and more.
Price activity that doesn’t seem to know where to go next as a result of the confluence of these opposing variables. Is there a chance that something may change in the following week? As a retest of $40,000 comes closer.
Is there no “huge drawdown” for Bitcoin?
BTC/USD is starting the week with a recapture of $42,000, which it lost overnight as it sank into the weekly close.
Bitcoin touched its lowest values in weeks, matching those on March 23, when it hit $41,771 on Bitstamp.
As a result, the largest cryptocurrency also lost all of its gains from the previous session, returning to the top of its trading range from last month. This could wind up being a retest of earlier resistance as support, and rather than dreading the worst, many traders are hoping for a quick reversal.
“I’m buying the dip on a bullish retest of the flipped weekly mark, finex whale filling bids.” “You can wait for a monthly close to confirm if you want to wait for confirmation,” prominent Twitter user Credible Crypto posted in comments tonight.
Both Bitfinex whale purchasing and new chart data imply that Bitcoin’s Aroon signal has flipped bullish in recent days, according to Credible Crypto. Aroon, which is used to determine if an asset is in an uptrend or downtrend, has only issued bearish-to-bullish “crosses” six times since 2017 — the year of Bitcoin’s latest blow-off high.
Pretty good odds of you ask me. Aroon is designed to act like both a smooth indicator and exponential one due to its behavior toward time instead of price.
I’m not expecting a massive drawdown.
— Otsu (@OtsukimiCrypto) April 11, 2022
According to trader and analyst Rekt Capital had plenty of reasons to embrace a positive thesis for Bitcoin, but the weekly closing of about $42,150 fell short of his target of $43,100. “A BTC Weekly Candle Close like this, as well as a retest of $43.100 as fresh support, would be successful,” he said Sunday accompanied a chart.
“As a result, BTC is poised for a move higher inside the $43100-$52000 area, as indicated by the prior blue circle.”
Across the board, stocks were under pressure
So far, equities have had a bad day, with Asia leading the way with widespread losses, owing in part to China’s recent Coronavirus lockdowns.
In early trade, the Shanghai Composite Index and Hong Kong’s Hang Seng both plummeted more than 2%. Markets in Europe have yet to open as of this writing, but the current geopolitical tensions centred on Russia showed no signs of abating.
A probable lead for incumbent French President Emmanuel Macron over far-right contender Jean-Marie Le Pen in surveys provided a ray of hope for the euro. Beyond the short term, analysts are concerned about three trends: quickly rising inflation, bond market losses, and central banks’ apparent failure to respond so far. The European Central Bank (ECB) will meet this week with a focus on inflation control, which will include stopping asset purchases and increasing interest rates.
The biggest bond bubble in 800yrs continues to deflate after the start of the Fed's rate-hike cycle, ahead of next week's #ECB meeting & as rising #inflation shakes up bond mkts. Value of global bonds has dropped by another $960bn this week, bringing total loss from ATH to $6tn. pic.twitter.com/g78Pu2dyLo
— Holger Zschaepitz (@Schuldensuehner) April 10, 2022
The situation exemplifies the problems that stocks and risk assets face in the current environment. The true depth of the economic reality is already obvious, as observers concur that the inflationary environment and concomitant central bank policies will diminish demand for Bitcoin and crypto.
Holger Zschaepitz disclosed in a prior Twitter post last week that, despite all of the increases in the S&P 500, the Fed’s asset purchases mean that progress since the Global Financial Crisis has been flat.
“To put things in perspective, the S&P 500 may have reached a new high today, but when compared to the Fed’s balance sheet, it is trading at the same level as in 2008,” he wrote. “Equities have traded sideways since 2008, effectively counteracting balance sheet expansion.”
Do you want to go down together?
The optimistic case for Bitcoin as a store of value in the face of failing currencies, according to Arthur Hayes, ex-CEO of derivatives behemoth BitMEX, is still there.
The issue is that such a scenario does not exist – at least not yet. Hayes reiterated his cautions in his most recent blog post, which was published on Monday, that pain would come before gain for the average investor with considerable risk asset exposure.
In the future, nation states and individuals may shift away from the dollar’s hegemony in favour of other assets, but for the time being, macro forces will continue to wreak havoc on crypto. If stocks are expected to fall as central banks attempt to ostensibly combat inflation, crypto’s growing association with them can only indicate one thing.
“The short-term (10-day) correlation is strong, and the medium-term (30-day and 90-day) correlations are rising and going to the right. “This is not what we want,” Hayes said of crypto-Nasdaq 100 correlations (NDX).
“Correlations across all time periods must trend demonstratively downward for me to fly the flag in support of selling fiat and purchasing crypto in anticipation of an NDX catastrophe (30 percent to 50 percent loss).”
Is it possible that the Fed’s activities will cause equities to lose half their value? It’s anyone’s guess, according to Hayes. “Are you sure you’re down 30%?” … A 50% drop?… He went on to say, “Your guess is as good as mine.”
“But let’s be clear: the Fed has no plans to expand its balance sheet anytime soon, which means stocks aren’t going any higher.”
The mood differs from that of typical markets
It’s no wonder that market mood is suffering as a result of the macro gloom on the horizon.
The Crypto Fear & Greed Index has returned to “fear” zone after sensing “greed” across crypto at the end of March.
As traders’ cold feet return, the gauge, which is modelled after the classic market Fear & Greed Index, has lost half of its normalised score in under two weeks.
On Monday, Crypto Fear & Greed scored 32 out of 100, while its regular market counterpart scored 46 out of 100, which is considered “neutral.”
Whether deserved or not, Van de Poppe warned readers not to trade based on sentiment indicators.
“Everyone was tremendously positive on the markets,” he continued, “but now the markets are starting to correct, and dread is taking over.”
“In most cases, emotion isn’t a good indicator of how you should trade.”
Fundamentals are what keep the religion alive
This week, a ray of light comes from a familiar source: despite the price drops, Bitcoin’s network difficulty is only expected to drop by 0.4 percent in the coming days.
Difficulty will shift downward from all-time highs to reflect changes in mining composition, which is arguably the most essential component of the Bitcoin network’s self-maintaining paradigm.
Despite last week’s 10% BTC/USD drop, the tiny adjustment implies that miners are financially stable at present prices and are not hurting.
Further evidence backs up the claim, with hash rate estimates from the monitoring resource MiningPoolStats also hovering at all-time highs.
Mining continues to attract significant investment, including from Blockstream, which announced last week the launch of a solar-powered farm that will create 30 petahashes per second once operational.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.