Bitcoin, crypto Talking Points:
- Bitcoin breaks $20,000 despite a positive NFP reading
- $22,000 Remains as key psychological resistance
- Will a break of technical resistance allow BTC/USD to climb higher?
Cryptocurrency has taken a beating this year as fundamental factors remain the prominent drivers of price action.
While the crypto industry has experienced a steep rally that led retail and institutional investors rushing to own Bitcoin, Ethereum and more recently, alt coins; the economic outlook appears to be taking on a different trajectory.
When reviewing the events and responses that have unfolded since the onset of the Covid-19 pandemic, large stimulus packages in a low interest rate environment made digital assets attractive investments, alongside Equities and ‘riskier assets’.
As Elon Musk praised Bitcoin and at a later stage ‘Dogecoin’, speculation and crowd psychology drove Bitcoin from a low of $3,850 in March 2020 to the all-time just above $69,000 in November last year.
That’s an 1,692% increase despite consecutive lockdowns and a slowdown in economic growth.
However, with the invasion of Ukraine exacerbating price pressures, growth forecasts have dwindles with persistent higher inflation levels forcing Central Banks to rise rates more aggressively and to put an end to Quantitative Easing despite rising recession fears.
For Bitcoin and its counterparts, fear and an increase in risk aversion has seen an enormous amount of outflows in the month as institutions and large market players shift focus to interest bearing assets.
While this doesn’t seem to be that bad, it is important to remember that regulatory scrutiny has been an ongoing issue for some time as the ‘value’ of the individual coins or tokens remains a contentious topic.
But, although regulators have imposed certain regulations, there has still been some ‘wiggle room’ for exchanges. Now, looking back on the events building up to the 2008 Financial Crisis when hedge funds and other financial institutions used Mortgage Backed Securities (MBS) as way to secure a greater portion of the real-estate market, lack of regulations allowed Financial institutions to make use of leverage in hopes of making larger profits.
A brief recap of what has unfolded in the past two months include:
- The collapse of ‘Stablecoin’ Terra (Luna)
- Staff reductions from Gemini, Coinbase and other large industry leaders
- The insolvency of Three Arrow Capital (one of the largest crypto hedge funds)
- Interest rate hikes at a more aggressive pace
Although this doesn’t bode well for holders of cryptocurrency, players like FTX who have made an agreement to acquire BlockFi may give provide an platform for additional players who are going into liquidation if risk-off sentiment continues to hold. If more M&A’s occur (which is my prediction), then industry leaders may give way for more stringent regulations and potentially more stability for the asset class that is renowned for its volatility and large price swings.
From a weekly time-frame, Bitcoin prices have edged above the 88% Fib of the March – June move, finding stability above the $20,000 handle. A break above could give rise to $22,000 with additional resistance holding at $24,000.
Bitcoin (BTC/USD) Daily Chart
Chart prepared by Tammy Da Costa using TradingView
— Written by Tammy Da Costa, Analyst for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707