Bitcoin, Crypto Talking Points:
- Bitcoin Breaks $20,000 Despite Positive NFP Reading
- $22,000 remains key psychological resistance
- Will a breakout of technical resistance allow BTC/USD to rally higher?
The cryptocurrency has taken a beating this year as fundamental factors remain the main drivers of price action.
While the crypto industry has seen a strong uptick that saw retail and institutional investors rush to own Bitcoin, Ethereum, and more recently, altcoins; the economic outlook seems to be taking a different trajectory.
Reviewing the events and responses that have unfolded since the start of the Covid-19 pandemic, large stimulus packages in a low interest rate environment made digital assets attractive investments, along with stocks and bonds. “higher risk assets”.
While Elon Musk praised Bitcoin and at a later stage ‘Dogecoin’, speculation and crowd psychology took Bitcoin from a low of $3,850 in March 2020 to the all-time high just above $69,000 in November of last year.
That’s a 1,692% increase despite back-to-back lockdowns and a slowdown in economic growth.
However, with the invasion of Ukraine exacerbating price pressures, growth forecasts have been lowered with persistently higher inflation levels forcing central banks to raise rates more aggressively and end quantitative easing at despite growing recession fears.
For Bitcoin and its counterparts, fear and a rise in risk aversion have seen a huge number of outflows in the month as institutions and large market players shift their focus to interest-bearing assets.
While this may not seem like such a bad thing, it is important to remember that regulatory scrutiny has been an ongoing issue for some time, as the “value” of individual coins or tokens remains a contentious issue.
But, although regulators have imposed certain regulations, there has still been some ‘wiggle room’ for exchanges. Now looking back at the events leading up to the 2008 financial crisis when hedge funds and other financial institutions used mortgage-backed securities (MBS) as a way to secure a larger slice of the real estate market, the lack of regulations allowed financial institutions to use leverage in the hope of higher profits.
A brief summary of what has developed in the last two months includes:
- The collapse of ‘Stablecoin’ Terra (Luna)
- Staff reductions from Gemini, Coinbase and other big 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 does not bode well for cryptocurrency holders, players like FTX that have struck a deal to acquire BlockFi may provide a platform for additional players to be liquidated if the risk-off sentiment continues. If more mergers and acquisitions happen (which is my prediction), then industry leaders may usher in tighter regulations and potentially more stability for the asset class that is known for its volatility and big price swings.
From a weekly time frame, Bitcoin prices have broken through the Fibonacci 88% of the March to June move, finding stability above the $20,000 level. A break above could lead to $22,000 with additional resistance holding at $24,000.
Bitcoin daily chart (BTC/USD)
Graph made by tammy da costa using TradingView
— Written by Tammy Da Costa, Analyst at DailyFX.com
Contact and follow Tammy on Twitter: @tams707