The Bitcoin (BTC) price has tumbled more than 5% on Tuesday to below $60,000 following a disappointing first day of spot Bitcoin ETF trade in Hong Kong, and following fresh US economic data that points to sticky inflation and strengthens the argument that the Fed should wait before cutting interest rates.
Having pushed nearly as high as $65,000 in early Asia trade, Bitcoin was last changing hands in the $59,900s.
And as macro/fundamental headwinds build, technical analysis suggests that BTC could be headed for a near-term correction into the $50,000s.
Since mid-April, the Bitcoin price has consistently found resistance at its 21 and 50DMAs, suggesting the bears are in control.
Moreover, the Bitcoin price has also formed a descending triangle in the last few weeks. Descending triangles typically form ahead of bearish breakouts.
Should the Bitcoin price break to the south of its recent range lows at $60,000, a quick retest of $53,000 is possible. Source: TradingView
Should Bitcoin break to the south of its recent range lows at $60,000, a quick retest of $53,000 is possible. That could mean a 12% near-term drop from current levels.
That would take the Bitcoin price’s pullback from its March all-time highs near $74,000 to nearly 30%.
Hong Kong Spot Bitcoin/Ether ETF Launch Falls Flat
The launch of spot Bitcoin and Ether ETFs in Hong Kong on Tuesday fell flat.
Hong Kong ETF providers had been pumping hype prior to the launch, claiming that the Hong Kong launch could surpass the US launch.
Instead, total trading volumes amounted to just under $12.5 million, as per Bloomberg data circulated on X. Hong Kong’s new Bitcoin ETFs saw less than $10 million in trade volumes.
Hong Kong Crypto ETFs were predicted to have $300 million inflows on the first day.
Instead they had a total of $12.4m in total trading volume. pic.twitter.com/YUGgD6ugjh
— wallstreetbets (@wallstreetbets) April 30, 2024
That was a big disappointment to the market. It was no wonder that the Bitcoin price saw a substantial dip in wake of these numbers coming out.
The weak Hong Kong ETF debut comes amid a slowing of inflows into spot Bitcoin ETFs in the US.
Flows have been net negative since last Wednesday, The Block data shows.
Flows have been net negative since last Wednesday, The Block data shows.
Still, the availability of these ETFs in one of the world’s foremost financial centers is an important milestone for crypto.
Macro Headwinds Keep Building
Adding to the sell pressure catalyzed by the weak Hong Kong ETF debut has been a continued build-up of macro headwinds.
Data relating to inflation in employment costs in the US came in higher than expected for Q1.
Sticky core inflation…
The US Employment Cost Index rose by 1.2% in the first quarter of 2024, accelerating from a 0.9% increase in the previous three-month period and beating the market consensus of a 1% growth.
Employment costs rose the most in one year, as wages and… pic.twitter.com/SId678qKuT
— Ayesha Tariq, CFA (@AyeshaTariq) April 30, 2024
This has contributed to concerns that inflation in the US will remain “sticky” above the Fed’s 2.0% target.
It’s no wonder then that Fed policymakers are seemingly comfortable with the market’s recent repricing of Fed rate cut expectations.
As per CME data, the market-implied probability of no rate cuts by September is now 50%. One month ago, the market-implied probability of no rate cuts by then was only 6.5%.
Meanwhile, the probability of no rate cuts this year has risen to 25%, up from 1% one month ago.
As per Bank of America (BoA), the Fed is in “wait-and-see mode until (it) has more clarity on inflation”.
❖ Powell Seen as ‘Comfortable’ With Repricing of Fed Expectations: Bank of America
The Fed’s main message after tomorrow’s rate decision is likely to be that “policy needs more time, the next move is most likely a rate cut, and the committee is in a wait-and-see mode until the…
— *Walter Bloomberg (@DeItaone) April 30, 2024
“We suspect Powell is comfortable with the substantial pricing out of cuts this year,” Walter Bloomberg quoted BoA as saying.
Well-respected Fed analyst Nick Timiraos also argued in a recent WSJ article that the Fed will signal “it has the stomach to keep rates high for longer”.
It no surprise then that the US Dollar Index and US government bond yields are trading close to recent highs.
The DXY rebounded above 106 on Tuesday and is eyeing yearly highs at 106.50. The US 10-year was last at 4.68% and eyeing a retest of last week’s yearly highs at 4.74%.
Bitcoin tends to perform poorly in an environment of tightening financial conditions (i.e. when the market starts expecting higher interest rates and the dollar and yields rise).
Is the Bitcoin Bull Market Over?
Weakness in ETF inflows, tightening financial conditions plus bearish technicals could send Bitcoin to the $50,000s imminently.
Would this spell an end to the Bitcoin bull market that began back in late 2022?
While there will undoubtedly be a lot of FUD on social media platforms like X, that is very unlikely.
Firstly, assuming Bitcoin is following its usual four-year cycle, there is still roughly 1.5 years of bull market to go.
That argument is strengthened by the recent passing of the Bitcoin halving, a major driver of past four-year cycles.
The first three Bitcoin halving’s all preceded huge pumps to new record highs, albeit not for at least 4-6 months.
#BTC
Don’t let this retrace distract you from where we are in the Bitcoin cycle$BTC #BitcoinHalving #Bitcoin pic.twitter.com/LniRS6xu8u
— Rekt Capital (@rektcapital) April 30, 2024
The question is, will the price action following this halving be different?
Well, the price action leading up to the latest halving was different. Bitcoin was able to hit a new all-time high prior to the halving for the first time.
That arguably raised the risk of a post-halving correction, which appears to be manifesting right now.
But that doesn’t mean we won’t see new all-time highs after the halving in late-2024 or 2025.
Meanwhile, though rate cuts bets are being pushed back, interest rates in the US have most likely peaked. That’s to say, the question remains “when”, not “if” the US starts cutting rates.
And easier financial conditions ahead should eventually come in as a tailwind to the market.
Risks are arguably more tilted towards economic weakness in the US and lower inflation, than towards strength.
After all, interest rates remain at multi-decade highs and the yield curve has been inverted for well over a year.
Should the US economy weaken, bringing inflation down faster, this would hasten rate cuts.
ETF & Safe-Haven Demand To Boost BTC?
Other factors are also set to boost BTC. Most potential buyers of the US ETFs haven’t stepped into the market yet.
Many are required to conduct a period of due diligence on the new products before investing. Many don’t have access yet, as the ETFs aren’t yet offered by their bank/wirehouse.
Risks are strongly tilted towards a continuation of inflows in the coming years. That is to say, it’s very unlikely current AUM in spot Bitcoin ETFs doesn’t continue rising.
More broadly, the narrative of Bitcoin as “digital gold” will continue gaining momentum in the coming years.
BlackRock CEO, Larry Fink, is literally on Fox Business arguing with the host about why #Bitcoin is the modern day digital gold, how it protects you from inflation and removes counter party risk associated with governments.
The narrative is changing! pic.twitter.com/OOSAs4eHjt
— The ₿itcoin Therapist (@TheBTCTherapist) March 9, 2024
It’s likely that more companies and countries will adopt it as a reserve asset as Wall Street ups its allocation.
Bitcoin may also continue to attract safe-haven demand, if geopolitical/financial stability concerns resurface.
Fed rate hikes have put a major strain on many regional US banks – Troubles here could re-emerge at any moment.
Traders will remember the March 2023 Bitcoin price pump as various banks collapsed.
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