(Kitco News) Despite volatility continuing to rock the crypto market, Bitcoin has carved out a range between $28,000 and $32,000 during the past week. But the latest economic warning from JPMorgan Chase CEO Jamie Dimon is adding to the risk-off sentiment.
After attempting to breach the $32,000 level in the last 24 hours, Bitcoin is down 7% on the day and trading below its key psychological threshold of $30,000.
For most of May, Bitcoin closely followed the sentiment in the U.S. stock market, and that relationship is still intact as Bitcoin retreated along with U.S. stocks on Wednesday amid a stark warning from JPMorgan Chase CEO Jamie Dimon.
"You know, I said there's storm clouds, but I'm going to change it … it's a hurricane," CNBC quoted Dimon as saying at a financial conference in New York. "You'd better brace yourself … JPMorgan is bracing ourselves, and we're going to be very conservative with our balance sheet."
And even though the economic situations seem "fine" right now, it is still unclear whether it will be "a minor" hurricane or "Superstorm Sandy."
"Right now, it's kind of sunny, things are doing fine, everyone thinks the Fed can handle this," Dimon said. "That hurricane is right out there, down the road, coming our way."
The two most significant risks on Dimon's radar are the Fed's quantitative tightening (QT) that is kicking off on June 1 and the impact of the war in Ukraine on commodities.
"We've never had QT like this, so you're looking at something you could be writing history books on for 50 years," Dimon said. "Wars go bad, [they] go south in unintended consequences," Dimon said. "We're not taking the proper actions to protect Europe from what's going to happen to oil in the short run."
Dimon is not ruling out oil at $150 or $175 a barrel.
JPMorgan Chase CEO's message has turned Wall Street's sentiment back to bearish, said OANDA senior market analyst Edward Moya.
"The mood on Wall Street is turning very negative as the economy is headed for a rough patch. Comments from JPMorgan CEO Dimon that the economy is headed for a 'hurricane' are also weighing on sentiment," Moya said Wednesday. "U.S. stocks turned negative as expectations grew that the Fed won't be easing up on its rate-hiking campaign after both solid U.S. economic data and aggressive rate hiking talk by the Bank of Canada. Everyone expects economic activity to soften over the next couple of months, especially since inflation risks remain elevated and now that the Fed has begun shrinking its $8.9 trillion dollar balance sheet."
To determine whether the price bottom is in for Bitcoin, traders can look to institutional investors, according to Moya.
"Bitcoin continues to follow what happens on Wall Street, but that may change if more institutional investors believe that the crypto bottom has been made," said OANDA senior market analyst Edward Moya.
Bitcoin is coming out from a period of consolidation. Still, a risk of a quick retracement cannot be ruled out, said Fairlead Strategies founder and managing partner Katie Stockton.
"Short-term momentum is positive … supporting a test of the 50-day MA ($34.8K)," Stockton said in a note this week. "We maintain an intermediate-term bearish bias, however, noting intermediate-term momentum is negative, and price remains below the daily cloud."
Stockton added that long-term support is at around $27,200, and long-term resistance is at around $42,600.
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Overall, the interest in crypto investments seems to be returning over the past week, with data from CoinShares showing crypto funds registering inflows of $87 million last week versus outflows of $141 million in the previous week, said GlobalBlock analyst Marcus Sotiriou.
"Inflows were dominated by Bitcoin, as it remains the most popular crypto investment for institutions in this current macro environment, whilst Ethereum saw outflows of $11.6 million. This coincides with Ethereum performing worse relative to Bitcoin last week, signalling investors were capitulating assets that are further on in the risk curve," Sotiriou added.
However, one headwind going forward could be bitcoin miners selling their holdings to meet profit margins amid a falling price.
"Miners may begin to sell hodl'd Bitcoin into the open market," said Compass Mining in a note Wednesday, citing data from CoinMetrics. "At the very least they are feeling the pain after the last major dip in price. Couple this with a downwards difficulty adjustment – indicating miners powering off – and it seems miners may be hitting a wall in profitability."
