Bitcoin has recently experienced a significant drop from its peak in March, influenced by a stronger U.S. dollar and geopolitical tensions. So, what lies ahead for the cryptocurrency?
Bitcoin (BTC) has seen a sharp decline in its value, trading at around $63,000 levels as of April 16. This comes after reaching an all-time high of $73,750 on March 14, resulting in a 15% pullback.
The surge to the all-time high was primarily driven by the approval of spot Bitcoin ETFs by the U.S. SEC in January 2024. This move brought fresh capital from institutional investors into the market, pushing prices to record levels.
In addition to this positive development, Hong Kong regulators also approved spot Bitcoin and Ethereum ETFs on April 15, as announced by the HashKey blog.
Despite these encouraging triggers, geopolitical tensions in the Middle East have dampened investor enthusiasm. The fear and greed index, a metric used to gauge investor sentiment, has dropped significantly from its previous highs. This suggests a gradual erosion of investor confidence, possibly due to a mix of geopolitical uncertainties and profit-taking.
So, what factors are influencing the price action of Bitcoin, and where could BTC be headed next?
Factors Affecting BTC Price Action
Various macroeconomic factors are at play that are impacting BTC price action. Let’s examine them one by one:
Strengthening of the U.S. Dollar
Over the past three weeks, the US Dollar Index, which measures the Greenback against a basket of foreign currencies, has surged by 1.84%. This surge has coincided with a decline in BTC’s price.
The upward trend of the US Dollar Index may continue until it surpasses 107, marking the midpoint of a significant 13% crash observed between September 2022 and July 2023.
If this projection materializes, Bitcoin could face further downward pressure unless there is a fresh rally to counteract the dollar’s strength.
The primary reason behind the dollar’s strength is the changing expectations regarding interest rate cuts by the U.S. Federal Reserve. Concerns about inflationary pressures have intensified, with projections indicating a potential inflation rate of 4.8% by the 2024 election.
The recent CPI inflation data has shown a persistent upward trend, with month-over-month inflation averaging 0.4% over the last three months. If this trajectory continues, year-over-year inflation could exceed the Fed’s 2% long-term target by a significant margin.
Previously, there were expectations of interest rate cuts by the Fed in June. However, stronger-than-expected CPI data has led to speculation that these cuts may be delayed, strengthening the dollar.
Cryptocurrencies are often viewed as alternative investments, particularly during times of economic uncertainty or when traditional assets like the dollar show signs of weakness. Therefore, with the strengthening dollar, investors may choose to hold onto or invest in traditional assets, leading to reduced demand for BTC and other cryptocurrencies.
Rising Geopolitical Tensions
The recent escalation of conflict in the Middle East, triggered by Iran’s drone strike over the weekend, has potential implications for financial markets, including Bitcoin.
During times of geopolitical turmoil, investors often seek refuge in safe-haven assets like the US dollar and gold, both of which have seen price appreciation recently.
Historically, periods of geopolitical unrest have coincided with a strengthening US dollar. For instance, during previous conflicts in the Middle East, such as the Gulf War and the Iraq War, the dollar has gained value as investors sought safety amid uncertainty.
Where Could BTC Price Head Next?
Recent data indicates that Bitcoin commands nearly 55% of the $2.27 trillion virtual currency market, a level not seen in three years. However, BTC’s price has dropped by almost 16% since its peak in March, with other cryptocurrencies experiencing even larger declines.
The introduction of Hong Kong-listed ETFs for Bitcoin initially boosted its value, briefly pushing prices to $66,500. However, the uncertain geopolitical climate has led to subsequent price retracements.
The next significant event for Bitcoin is the upcoming halving, which is just days away. Historically, the period before halving events has seen bearish sentiment, which may continue in the coming months.
Analyst Willy Woo warns that if Bitcoin’s price falls below the support level of short-term holders at $58,900, it could enter a bearish phase. He points to indicators like the sell-off on the cumulative volume delta (CVD).
Cryptocurrency analyst Michaël van de Poppe suggests that Bitcoin is currently holding support levels, with the potential for a slow upward trend. However, he cautions that a loss of support could lead to a further decline towards $55,000.
Given these factors and the upcoming halving, expect increased volatility in the coming days. Remember to stay calm and only invest what you can afford to lose.