Author: Yashu Gola

Bitcoin edged lower Thursday after the jobless claims in the United States reached their lowest level of the pandemic, confirming that the country’s economy is recovering at a faster rate.

The benchmark cryptocurrency fell to as low as $50,305 ahead of the New York opening bell, continuing its decline from the previous five sessions as traders became uncertain about potential demand against an optimistic economic outlook in the US.

Bitcoin earlier surged by more than 1,500 percent from its mid-March nadir as investors hunted for profitable investment alternatives against a dwindling US dollar and meager US Treasury yields.

Nevertheless, widespread vaccinations, easing business restrictions, and a flurry of government stimulus packages worked as an adhesive bandage on a very-wounded US economy. Americans are now spending more on businesses that were at the forefront of losses during the coronavirus pandemic. They include restaurants, gyms, hotels, salons, etc.

The renewed consumer spending led to the creation of 379,00 jobs in February. As a result, the unemployment rate ticked down to 6.2 percent, the US Labor Department’s statistics showed.

“There are fewer people that are losing their jobs,” Ben Ayers, senior economist at Nationwide Mutual Insurance Co, told the Wall Street Journal. “That’s a great sign that things are starting to pick up again for the economy.”

The 10-year US Treasury yield dropped down to 1.603 percent from 1.613 percent in the previous session in the bond market. Yields drop when bond prices rise. Against the falling US stock futures on Thursday, it appeared portfolio managers were moving their capital out of equities to bonds in a quarter-end rebalancing.

Bitcoin, which moved almost in tandem with Wall Street during the pandemic, dragged itself lower in sync with the Nasdaq Composite and S&P 500 indexes.

Recovery for Bitcoin Ahead?

There are signs that the rebound in the global economy might slow down by an extension of coronavirus lockdowns and growing limitations in the supply chain for vaccines. Fresh stimulus checks in the US also risk faster inflation, threatening to curb appetite for government bonds and technology stocks.

Last week, the Federal Reserve clarified that it would maintain lower interest rates and infinite bond-buying programs unless it achieves a sustainable inflation rate above 2 percent and maximum employment. With the US economy recovering, the central bank is steadily inching towards its target before introducing the next rate hike.

The Fed wants to maintain lower rates until 2024.

Therefore, Bitcoin is entering a period of uncertainty. On the one hand, the prospect of higher inflation and monetary debasement could make the cryptocurrency appealing for more corporates and mainstream investors.

Meanwhile, on the other, a focus shift towards the pandemic losers — sectors like energy, hospitality, etc. — offer traditional investors a less risky alternative to park their capital after selling overvalued assets.

Technically, Bitcoin now holds support at its 50-day moving average. A breakdown below it risks crashing the cryptocurrency towards $44,000.

A migration of billions of dollars is set to happen from stocks to bonds by the end of March as US-based asset management firms rebalance their portfolios. And it could have a direct or an indirect impact on the Bitcoin market.

Nikolaos Panigirtzoglou, a cross-asset research analyst at JPMorgan & Chase, noted that pension funds, insurers, and similarly large investment groups will sell their stock positions to seek exposure in the bond market. The move, according to Mr. Panigirtzoglou, would appear as investors seek to go back to the classic 60/40 mix, a portfolio strategy that prompts asset managers to keep 60 percent of their capital in stocks and 40 percent in government bonds.

“It should be happening as we speak,” Mr. Panigirtzoglou told the Financial Times. “The rebalancing could already help to explain the stronger bond market performance so far this week, as the transfers are typically concentrated in the last two weeks of the quarter.”

US bond prices declined of late, led by the fall in the US 10-year Treasury note, which sent its yields up from 0.917 percent at the start of 2021 to around 1.617 percent on March 25. Meanwhile, the MSCI index of developed market equities surged 2.63 percent in the same period.

Given the divergence between equities and bonds, analysts expect the quarter-end rebalancing to be large as more capital moves into fixed-incomes.

Will Bitcoin Suffer?

According to Australia’s Future Fund and Singapore’s GIC Pte, two of the world’s biggest sovereign wealth funds, it is now tougher for investors to generate returns from bond markets as yields on them remain historically low.

Central banks in developed economies have created an artificial demand for government debts as a part of their strategy to safeguard their economies from the coronavirus pandemic’s aftermath.

As a result, the 60/40 strategy has lost its charm. More investor money now sits in riskier assets and even newbie financial assets like Bitcoin that the global financial experts once rejected as too fishy, or an outright scam.

Given the reallocation prospects by the end of this quarter, Bitcoin continues to flash itself as a viable alternative to gold. Its provably scarcer features attract investors who need a hedge against faster inflation rates. Billionaire investors Ray Dalio, Paul Tudor Jones, and Stan Druckenmiller are some of the topmost names that have taken positions in Bitcoin because other safe-havens like bonds do not offer higher returns.

Goldman Sachs said in its recent report that 40 percent of its almost 300 clients have gained exposure in Bitcoin, showing that the asset’s price volatility is now the least of their concerns. Of late, Morgan Stanley also started offering three Bitcoin funds to its wealthy clients, raising hopes that all the money that would flow out of the stock market won’t end up in bonds only.

Nonetheless, Bitcoin remains highly valued like stocks. It could lead the cryptocurrency lower in the short-term based on its technically overbought merits.

Cover Photo by Tech Daily on Unsplash 

Key Bitcoin Points

• Bitcoin rose ahead of the New York opening bell on Tuesday.
• Traders flocked to re-accumulate the cryptocurrency as it reached a classic support level.
• Trading inside a short-term falling wedge, bitcoin now anticipates extending its rebound towards $58,000.

Bitcoin climbed higher ahead of the US trading hours Tuesday after dipping to $53,000 during the Asia-Pacific session.

The level also coincided with the cryptocurrency 200-4H moving average (the orange wave in the chart below). Its historical significance as support in capping Bitcoin’s downside attempts allowed traders to treat it as their accumulation level. As a result, the BTC/USD exchange rate rebounded by more than 2.5 percent during the European session.

As the New York opening bell neared, Bitcoin climbed above $55,000, a psychological price floor. That raised expectations that the cryptocurrency would hold above the said level to the further upside during the US session. A technical pattern supported the bullish forecast.

The Wedge

Bitcoin’s rebound off the 200-4H MA (and the $53,000-level) also coincided with a support confluence provided by a descending trendline. Meanwhile, another falling trendline capped the cryptocurrency from extending its gains. Together, these trendlines formed a Falling Wedge, a bullish reversal pattern.

BTC/USD has been fluctuating inside the Wedge since March 10.

After testing the pattern’s lower trendline as support, the pair rebounds to reach and test its upper trendline as resistance. After that, it pulls back again to retest the lower Wedge trendline as support. In total, Bitcoin has confirmed six rebounds and thirteen pullbacks.

Therefore, traders—psychologically—expect the cryptocurrency to reclaim Wedge’s upper trendline, which sits above the $57,000-level.

More short-term bullish confluence comes in the form of on-chain indicators. For instance, US cryptocurrency exchange Coinbase Pro alerted about massive Bitcoin outflows from its hot wallets on Tuesday. It suggested that traders withdrew their BTC holdings to hold them instead of selling them for other assets —fiat or crypto.

Roadblocks

Meanwhile, some analysts advised traders to remain watchful of surprising declines. One of them, a pseudonymous entity on Twitter, referred to Bitcoin breaking below medium-term ascending trendline support, which pointed to risks of extended declines.

“[It] could be a fake-out but we’d need some strong buyback today,” the independent analyst noted. “I’ll probably sit out today and observe. Being cautious with longs.”

Macroeconomically, a recent surge in the US dollar index also risks declines for Bitcoin. Investors are flocking back to the greenback amid concerns over the renewed US-China geopolitical tensions and roadblocks in the European Union’s vaccination program that has reduced appetite for euro and euro-based assets.

Bitcoin has walked away from pursuing a lengthy downside correction repeatedly this year.

The cryptocurrency’s run-up to $58,367 in February attracted a modest selling pressure as the price dipped by 26.30 percent afterward. Similarly, its previous rally above a then-record high of $41,000 followed up with a 30 percent bearish correction.

Last week, Bitcoin achieved a new milestone high above $61,778, after which it corrected lower by up to 13.87 percent. But again, the cryptocurrency found ample bullish support near local lows, raising hopes that it would continue its uptrend higher for the rest of the first fiscal quarter.

That 20-Week SMA

Bitcoin’s ongoing uptrend—technically—appears similar to its 2015-17 bull run if one looks closely. Back then, the cryptocurrency rallied relentlessly, facing modest corrections midway, as it established $19,891 as its all-time high (data from Coinbase).

What supported Bitcoin during its move upward was a 20-week simple moving average (the green wave). Every sell-off attempt led the prices lower towards the support curve, following which the price rebounded upward to hit a new record high level. Despite occasional bearish wicks below the 20-WMA, the BTC/USD exchange rate never dipped below the wave until the week ending January 28, 2018.

Furthermore, during the 2015-17 rally, Bitcoin’s pullbacks largely appeared when its weekly Relative Strength Indicator was inside its overbought area. As the momentum indicator neutralized, it fell to a bullish support target near 51.92. That coincides with the BTC/USD rate contacting the 20-WMA.

Even during the 2019 correction, wherein the pair turned lower after forming a high near $13,868.44, the RSI’s dip towards 51.92 coincided with Bitcoin’s plunge to the 20-WMA. That serves as a fractal to what is taking place in the cryptocurrency market currently.

The Next Bitcoin Decline

Bitcoin has maintained support above the 20-WMA ever since it closed above it in late April 2020. Its last contact with the support wave was in October 2020 — again coinciding with the RSI approaching 51.92. Since then, BTC/USD has largely avoided the retest.

Part of the reason is Bitcoin’s growth as a mainstream financial asset. Each of the cryptocurrency’s downside corrections has followed up with a heavyweight firm announcing support for it — be it offering crypto-enabled services (read PayPal, MasterCard) or adding Bitcoin to balance sheets as an alternative store of value asset (Tesla, MicroStrategy, etc.).

Loose monetary policies and ultra-low interest rates have provided tailwinds to Bitcoin adoption among mainstream firms. With most of such dovish measures still in place, bulls expect the cryptocurrency to grow even further higher by the end of this year. Some even think a $100,000 Bitcoin is possible.

As usual, the 20-WMA is rising alongside as Bitcoin extends its weekly bullish bias. As of Thursday, the green wave was sitting near $37,825.

Meanwhile, the RSI is inside its overbought area, expecting to decline further as the market neutralizes. The fractal sees a drop towards 51.92, which means it would largely coincide with BTC/USD’s plunge towards the 20-WMA.

That risks putting the pair en route to at least $40,000.

Key Bitcoin Takeaways

• Bitcoin sell-off accelerated ahead of the US session as US 10-year Treasury yields hit a fresh 13-month peak.
• The cryptocurrency’s latest decline appeared ahead of the Federal Open Market Committee’s two-day policy meeting conclusion.
• Economists believe that the Fed Chairman Jerome Powell would maintain easy-money policies while ignoring intervention in the rising long-dated Treasury yields.

Bitcoin extended its weekly decline on Wednesday as traders’ focus shifted to rising long-dated US government debt yields.

The benchmark cryptocurrency dropped 3.52 percent into the session, hitting 54,992 around London noon. Traders flocked out of the Bitcoin market as Cardano, one of its crypto rivals, offered better intraday prospects. Their sell-off also accelerated as the yield on the US 10-year Treasury note rose to its highest level since February 2020, gaining 0.04 percentage points to 1.67 percent in early Wall Street trading.

Fed Meet

At the core of rising bond yields were expectations that the Federal Reserve would avoid extending its ongoing asset purchasing program below to Bitcoin as Key US Yield Hits Feb 2020 High Ahead of FOMC Meeting to longer-dated government debts. The US central bank officials will conclude its two-day policy meeting on Wednesday, after which its chairman Jerome Powell will take questions at a post-meeting news conference.

Global mkts retreat as investors await Fed w/US 10y ylds hovering ~1.63% & 10y US break evens at near 13y highs. Fed will likely note an improving econ outlook, while also stressing that it is too early to change their plans for rates & bond purchases. Gold $1735. #Bitcoin $55.8k pic.twitter.com/De5R0kph9X

— Holger Zschaepitz (@Schuldensuehner) March 17, 2021

The Wall Street Journal reported that the Federal Open Market Committee (FOMC) would hold its overnight rates near zero until the US economy secures maximum employment and sustained inflation above 2 percent.

It is less likely for the conditions to reach the Fed’s desired goals this year. Therefore, the central bank will have to continue its policy, including a $120 billion monthly purchase of government debts and mortgaged-backed securities.

Meanwhile, private economists believe that the US will recover jobs this year on the prospects of advancing COVID-19 acceleration and Joe Biden’s $1.9 trillion stimulus package. A survey conducted by the WSJ shows that economists expect the US GDP to grow by 6 percent this year. Should that happen, the Fed would likely taper its easing policies.

Risks Clouding Over Bitcoin Market

Higher interest rates have dealt a blow to Bitcoin lately. The cryptocurrency declines by more than 21 percent in the week ending February 28 after the 10-year note yield rallied. While the Fed will likely ignore intervention, the confusing communication could lead to higher volatility in bonds, stocks, and even cryptocurrency markets.

“They have not stated exactly the extent of the overshoot they are comfortable with or for how long,” Silvia Dall’Angelo, senior economist at Federated Hermes, told FT. “From a market perspective, this brings uncertainty and volatility.”

A continued sell-off in the US bond market would keep the Bitcoin market prone to wild fluctuations, especially as it has already rallied by almost 1,500 percent since March 2020 and risks undergoing vast bearish corrections. Meanwhile, its growth among corporates as an anti-inflation asset keeps offsetting its downside bias.

Technically, Bitcoin holds its short-term support at the 20-day moving average (the green wave). A breakdown led by rising yields risks putting it en route to the 50-day moving average below. It sits near $47,500 at this press time.