Bitcoin (BTC), the cryptocurrency that powers the world’s largest decentralized cryptographically secure network, fell around 1.5% on Tuesday to the $29,700 area and briefly hit new one-month lows around $29,500 earlier that year. day.
Momentum for the cryptocurrency has continued to fade since hitting a fresh yearly high last week near $31,800, fueled at the time by optimism regarding 1) recent bitcoin exchange-traded fund (ETF) filings from the Wall Street heavyweights and 2) a US judge’s ruling on XRP being viewed by markets as crypto bullish.
The latest drop in BTC has seen it drop around 2.5% below its 21-day moving average.
If the cryptocurrency also loses its grip on the mid-$29,000 support from late June or early July, it is likely to drop to the mid-$28,000 support.
While the near-term technical outlook for bitcoin is precarious, macro tailwinds could help BTC.
In fact, if some of bitcoin’s historically strong correlations, such as the US stock market and the US dollar, come back, then bitcoin could be set to bomb.
Bitcoin (BTC) Should Pump If These Correlations Resurface
Over the past three years or so, bitcoin has typically had a strong positive correlation with the US stock market.
That could be because while Bitcoin has become a mainstream asset in recent years, most investors still view and trade it as a “risky asset” (much like how they trade stocks).
Bitcoin also seems (or seemed) to have the same positive correlation with easing liquidity conditions as the stock market.
In fact, in 2020/2021, bitcoin was pumped along with the stock market with low interest rates and massive QE from the world’s major central banks, before reversing sharply along with stocks in 2022 when those same central banks began to rapidly increase interest rates. due to runaway inflation.
The following graph produced by CoinMetrics.com it demonstrates how, in 2023, there has been a sharp drop in correlation.
That could be because some are starting to see bitcoin more as its creators and leading proponents have always wanted it to be seen, as a safe-haven alternative to the centralized and inflationary fiat-currency-based financial system.
That explains why Bitcoin soared in March as regional US banks went under, while US stocks fell on concerns about how the mini-crisis would affect economic growth.
Pearson’s 60-day correlation between the daily change in the price of bitcoin and the S&P 500, the most cited US stock benchmark, was last below 0.1, having hit as low as 0.75 in May 2022.
With the S&P 500 rising and now just 6% below its all-time highs as US inflation falls, US growth holding firm, the Fed’s tightening cycle is reaching its end and AI optimism continues to bubble, bitcoin bulls expect positive returns from the relationship.
After all, with stocks having now recouped most of their 2022 losses, the implication is that Bitcoin is undervalued at current levels below $30,000.
Another correlation that could return to bitcoin’s benefit is its historically negative relationship with the US dollar, or with the US dollar index (DXY), which is a trade-weighted basket of dollar exchange rates.
According to CoinMetrics, this negative ratio has recently reached its lowest level of the year just above -0.2, having been below -0.5 in 2022.
With the DXY recently falling to new yearly lows around 100, the implication here is also that Bitcoin is undervalued at current levels.
Historically, Bitcoin has had a negative relationship with the DXY given its relationship to US financial conditions: when the Fed eases, the DXY falls and stocks and bitcoin perform well and vice versa (or at least that much). is the theory).
Bitcoin Dip Buyers Seek These Levels for a Re-Entry
Given the US dollar and equity market macro tailwinds, it makes sense to remain bullish on bitcoin in the medium term and continue to look for opportunities to buy on the dip.
Bitcoin bulls are likely eyeing potential retests of support at mid-$28,000 and following the 2023 uptrend, which should come into play at mid-$27,000, as potential re-entry points.
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all your capital.
