Luc Smits van Oyen
Has Bitcoin really bottomed out? 3 things to watch!
Bitcoin (BTC) finally seems to be showing signs of life again after 2 months full of liquidations and lost hopes, but some experts are worried that the general enthusiasm currently taking place in the market is coming too soon.
After Tesla CEO, Elon Musk, reported on Twitter that Tesla would resume accepting Bitcoin provided Bitcoin miners comply with his environmental conditions, Bitcoin shot up again. The No. 1 cryptocurrency reached a local high of about $41,000 early Tuesday morning. Also, the news of El Salvador adopting Bitcoin as legal tender has apparently gone down well in the market.
Still, there are a number of macroeconomic and crypto-specific factors that could potentially throw a spanner in the works for the Bitcoin bulls. Below, we take a look at the 3 most important factors.
At the time of writing, the dominance rate still hovers below 45%, after peaking above 70% in early January. That Bitcoin's share price is still quite low is a bearish sign, according to analysts at JPMorgan.
"We believe Bitcoin's share of the overall crypto market should normalize and perhaps rise above 50% (as it did in 2018) to be more confident that the current bear market is behind us," JPMorgan analysts led by Nikolaos Panigirtzoglou said in a note published on June 9.
Matthew Dibb, co-founder and COO of Stack Funds, said he expects Bitcoin's share of the crypto market to rise in the coming weeks. "With the rotation of altcoins to Bitcoin, as well as the upcoming large purchases of Bitcoin by Microstrategy, we could see the dominance rate go up in the coming weeks, while altcoins lag behind."
Any hint of an early interest rate hike could generate risk aversion in financial markets and kill Bitcoin's recovery. On the other hand, a strong commitment to keeping the subsidy tap (or stimulus checks) open would further boost Bitcoin and asset prices in general.
Prominent investors such as Barry Silbert, co-founder and CEO of Digital Currency Group (the parent company of CoinDesk), expect an increase in stock market volatility following the Fed meeting. Some of that could spill over into the Bitcoin market. "I went long on the VIX to prepare for the 'macro fireworks,'" Silbert tweeted Monday, referring to the Cboe Volatility Index.
"Fundamentally, we still see downside risk to Bitcoin associated with a correction in extended U.S. equities and downside risk associated with regulatory headwinds," said Joel Kruger, a currency strategist at LMAX Digital.
Simon Peters, a crypto asset analyst at multi-asset investment platform eToro, also cited $41,000 as the level to overcome. "We saw the price get resistance at this level earlier in the year, when it was trading around what was then an all-time high, and I would need to see a stronger rise to be optimistic about the price recovering and possibly bumping through to $50,000 and beyond,"
While Dibb and Peters are looking at $41,000, there is buzz on social media that some in the community are focused on the 200-day simple moving average (SMA) hurdle, currently set at $42,604.
According to Pankaj Balani, CEO of Delta Exchange, the recent recovery from lows at $30,000 could be a short-lived rebound. "The rebound could reach $45,000 levels, but the upside here seems limited and we expect to see more selling at these levels," Balani said in a WhatsApp chat.
After Tesla CEO, Elon Musk, reported on Twitter that Tesla would resume accepting Bitcoin provided Bitcoin miners comply with his environmental conditions, Bitcoin shot up again. The No. 1 cryptocurrency reached a local high of about $41,000 early Tuesday morning. Also, the news of El Salvador adopting Bitcoin as legal tender has apparently gone down well in the market.
Still, there are a number of macroeconomic and crypto-specific factors that could potentially throw a spanner in the works for the Bitcoin bulls. Below, we take a look at the 3 most important factors.
Bitcoin dominance
A sustained uptrend in Bitcoin's dominance percentage - Bitcoin's share of total market capitalization - is needed to confirm a trend reversal. That's because the largest cryptocurrency by market value is usually the first to recover, followed by altcoins, or other cryptocurrencies. In other words, money enters the crypto world through Bitcoin, as seen in October 2020, and moves to altcoins.At the time of writing, the dominance rate still hovers below 45%, after peaking above 70% in early January. That Bitcoin's share price is still quite low is a bearish sign, according to analysts at JPMorgan.
"We believe Bitcoin's share of the overall crypto market should normalize and perhaps rise above 50% (as it did in 2018) to be more confident that the current bear market is behind us," JPMorgan analysts led by Nikolaos Panigirtzoglou said in a note published on June 9.
Matthew Dibb, co-founder and COO of Stack Funds, said he expects Bitcoin's share of the crypto market to rise in the coming weeks. "With the rotation of altcoins to Bitcoin, as well as the upcoming large purchases of Bitcoin by Microstrategy, we could see the dominance rate go up in the coming weeks, while altcoins lag behind."
The FED
Federal Open Market Committee (FOMC) are meeting Tuesday and Wednesday to discuss upcoming policy. Fed Chairman Jerome Powell will hold a press conference on Wednesday at 8:00 p.m. following the meeting. While the central bank is likely to leave key policy tools unchanged, some analysts fear the bank will adopt a slightly less accommodative tone when it comes to rising inflation.Any hint of an early interest rate hike could generate risk aversion in financial markets and kill Bitcoin's recovery. On the other hand, a strong commitment to keeping the subsidy tap (or stimulus checks) open would further boost Bitcoin and asset prices in general.
Prominent investors such as Barry Silbert, co-founder and CEO of Digital Currency Group (the parent company of CoinDesk), expect an increase in stock market volatility following the Fed meeting. Some of that could spill over into the Bitcoin market. "I went long on the VIX to prepare for the 'macro fireworks,'" Silbert tweeted Monday, referring to the Cboe Volatility Index.
"Fundamentally, we still see downside risk to Bitcoin associated with a correction in extended U.S. equities and downside risk associated with regulatory headwinds," said Joel Kruger, a currency strategist at LMAX Digital.
Technical Analysis
Although Bitcoin has made an impressive rebound to $40,000, it has yet to make significant price hurdles that could pave the way for a bullish scenario. "Ideally for us to call it a bottom, we would like to see a weekly close above $41,000," said Stack Funds' Dibb.Simon Peters, a crypto asset analyst at multi-asset investment platform eToro, also cited $41,000 as the level to overcome. "We saw the price get resistance at this level earlier in the year, when it was trading around what was then an all-time high, and I would need to see a stronger rise to be optimistic about the price recovering and possibly bumping through to $50,000 and beyond,"
While Dibb and Peters are looking at $41,000, there is buzz on social media that some in the community are focused on the 200-day simple moving average (SMA) hurdle, currently set at $42,604.
According to Pankaj Balani, CEO of Delta Exchange, the recent recovery from lows at $30,000 could be a short-lived rebound. "The rebound could reach $45,000 levels, but the upside here seems limited and we expect to see more selling at these levels," Balani said in a WhatsApp chat.