(Kitco News) – Bitcoin (BTC) is fighting to maintain support at $61,000 in early trading on Wednesday as bears look to drop the top crypto back into the $50,000 range for the first time since late February ahead of the halving, which is now two days away.
Data provided by TradingView shows that BTC hit a high of $64,530 prior to the market open in the U.S., but has since slid lower, currently trading at $60,400, with bears looking to extend the losses as traders wait on the sidelines for the pre-halving volatility to subside.
BTC/USD Chart by TradingView
The weakness in Bitcoin and the broader financial market comes as the U.S. dollar experienced its best five-day run since February, up more than 2% since April 10, with the DXY trading at 106.23 at the time of writing, its highest level since Nov. 2.
“The US dollar is on track for its best 5-day run since February 2023,” said analysts at The Kobeissi Letter. “The Bloomberg Dollar Spot Index has risen by ~2% over the last 5 trading days, the most in 14 months. Meanwhile, the US dollar index is up ~5% year to date.”
“Interest rate cuts have been pushed back to starting in September 2024 with just 2 rate cuts this year,” they added. “Less than a month ago, markets were anticipating the Fed to start cutting in June. Higher for longer is now the base case.”
The analysts noted that the setup for the current market conditions began when the Fed “seemingly declared victory against inflation” at a press conference on Dec. 13. Following the press conference, five Fed representatives made separate statements indicating they saw 100 bps in rate cuts in 2024.
“IMMEDIATELY after this Fed press conference, financial conditions eased rapidly,” they said. “From November 1st to January 1st, the market priced in an additional ~140 basis points of interest rate cuts. Markets saw their biggest 2-month easing of financial conditions in history.”
“In fact, the shift was so drastic that financial conditions are now EASIER than BEFORE RATE HIKES began,” the analysts added. “This is a bigger shift than easing expectations seen lowest point of the 2008 crisis. Markets effectively priced-in cuts like they already happened after December.”
“Now, CPI and PPI inflation are up for 2 straight months for the first time since September 2023,” the analysts said. “US CPI inflation is on track to hit 4.8% by the 2024 election, according to Bank of America. As a result, rate cuts are being priced-out like there's no tomorrow.”
“The base case currently shows only TWO rate cuts in 2024,” they noted. “There's a ~53% chance rates are unchanged until September 2024. There's also a growing 11% chance of no rate cuts at all this year. The Fed declared victory far too soon.”
“The worst part? A month after the December Fed meeting, officials tried to ‘undo’ what they said in December,” they added. “Fed officials stated that they were worried about cutting rates too soon. But, it was too late, financial conditions had eased and markets were partying.”
“As we've said for months, the fight against inflation is FAR from over,” the analysis concluded.
Historically, higher interest rates have encouraged foreign investors to take advantage of greater returns on bonds and term deposits, increasing the demand for the dollar. This is reflected in the recent rise of the DXY.
On Tuesday, the U.S. 10-year Treasury hit a five-month high of 4.699% and trades at 4.63% at the time of writing. The spike in yields came as Fed Chair Jerome Powell said the U.S. inflation rate, which currently stands at 3.5%, is not meaningfully moving towards the central bank’s 2% goal, meaning it’s “likely to take longer than expected to achieve that confidence.”
According to market analyst Bitcoin Schmitcoin, the DXY is “probably one of the only signals in crypto with a 100% strike rate showing market tops, bottoms, bull markets, AND bear markets.”
“Crypto bull = DXY Bear; Crypto bear = DXY bull; Crypto top = DXY bottoms; Crypto bottoms = DXY tops,” he noted. “While DXY consolidates, it's a grab bag of volatility in crypto/equities.”
He said that the DXY is now “beginning to break out of a 2-year consolidation to the UP side,” which “begs the question: Is the halving going to be a sell-the-news event?”
“DXY suggests it is indeed going to be a sell-the-news event,” he said. “We see potential topping formations in major equities markets and $GOLD is showing MAJOR strength after clearing a DECADE-LONG consolidation. All of this suggests that we are starting to see investors flee to hedging mechanisms for macro uncertainty. DXY is breaking out because people are seeking CASH rather than assets. People are buying GOLD because they are hedging.”
“The writing is on the wall and as much as I want to be bullish $BTC, I am really struggling to stay in that camp,” he concluded. “Mark my words: if DXY starts rallying, everything else is coming down as a result of it.”
According to trader Justin Spittler, conditions for cryptos and the stock market could see at least a temporary improvement in the near term as the rally in the DXY is showing signs of being overbought, which has typically preceded a notable correction.
U.S. Dollar Index $USD hit overbought levels today.
Does this mean it's about to put in a local top?
It could. Look at what happened the last three times this happened...$DXY pic.twitter.com/cC6VfMLlBI— Justin Spittler (@JSpitTrades) April 16, 2024
