Amid risk-off, Bitcoin drops to its six-week low.
Bitcoin is on the losing end again as the rigorous list of macro uncertainties weighs over traditional risk assets. The number one cryptocurrency traded at nearly $38,450 – the lowest since March 15 and dropped by almost 3.5% in 24 hours.
The global equity markets are all in the red, the European stocks are nearing one-month lows, and the futures bound to the S&P 500 are nursing a 0.7% drop. Commodities saw heavy losses, too, ending the recent resilience. Gold, a traditional safe haven and inflation, dropped by nearly 1% to $1,917 per ounce.
The US dollar is the only one to grow, standing tall as the dominant safe-haven asset. The dollar index topped 101 for the first time since March 2020. The Chinese yuan hit the lowest since November, to 6.553 against the dollar, making the markets concerned about a slowdown in the world’s second-largest economy.
The rebounce of the coronavirus outbreak in Beijing triggered fears of a hard lockdown, which will probably intensify the global supply chain issues, amplifying the already elevated inflation globally. The Chinese authorities have depended heavily on lockdowns to fight the virus.
China’s coronavirus woes have come at the worst time possible with the fear of rapid interest rate hikes by the Federal Reserve denting animal spirits in asset markets. Tradefi and crypto, on the other hand, are slanting towards a decidedly bearish sentiment. With crypto Twitter anxious about a potential flag breakdown on bitcoin’s technical chart, sentiment appears considerably bearish, which would potentially open doors for $20,000.
Market bottoms are often in extreme fear, and it is probably too early to catch the falling knife until the macro uncertainty persists. There will be a potential BTC drift as low as $33,000 if macro sentiment weakens more. There has been a consistent selling in line with the downside of the Nasdaq in Friday’s trade which is expected to continue in the near term, and tight trading with equities.
Bitcoin dropped below $40,000 on Friday as the tech-heavy Nasdaq index slipped over 2% on Fed rate hike fears.
There is still general downward pressure with a couple of intermittent short pushes producing little and getting beaten down due to long liquidations. The daily chart of Bitcoin indicates a drop under $40,000, exposing the trendline connecting January 24 and February 24 lows. The trendline support was $37,420.
Although the near-term prospects appear bleak, the worst is probably over when it comes to the inflation scare and market pricing for Fed rate hikes.
We are too close to peak inflation hysteria, followed by the additional frontloading of Fed tightening last week. Demand destruction still exists for the cycle with higher commodities and mortgage rates, and the pressure should ease after the pass-through of a +5% DXY appreciation this year.