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Bitcoin (BTC): fundamental pressure remains immense

by Patricia

Recent updates of economic aggregates describe a still dark fundamental scenario for risky assets in the stock market, with inflation stabilizing at a very high level and the probability of recession remaining high. In such a global-macro context, how will the bitcoin price manage to hold up?

An immense pressure on Bitcoin

The bitcoin price continues to face a very complicated fundamental framework. The pressure on the financial markets remains immense given the latest macroeconomic releases. The worst case fundamental scenario is embodied by the combo that is currently unfolding:

  • A stabilisation of inflation rates at a very high level;
  • A reduction in the overall level of liquidity in the financial system to break inflation;
  • A 12-month probability of recession that exceeds 40%;
  • An increasingly high cost of money with new multi-year records in market interest rates.

The equity market is again in a short-term correction and this seems to make sense on a fundamental level. The major central banks are looking to reach their terminal rates around the middle of the year, which should then remain stable at a very high level until the price regime has normalized. Clearly, the famous pivot of the US Federal Reserve (FED) and the European Central Bank (ECB) is postponed until early 2024.

I was very surprised that against such a backdrop, the crypto market was still consolidating the gains made since the beginning of the year. While the bitcoin price has not broken through the major technical resistance at $25,300, it has not erased its 2-month rise either.

Instead, the retracement from $25,000 is gaining momentum, with a recent candle at $22,200. The market must manage to preserve the support at $21,200 to avoid a sharp decline.

A good way to realise this amazing resilience of the crypto market is to practice technical analysis on the relative strength curve between the equity market and the crypto market. In order to proceed, the study of the Bitcoin/S&P500 ratio seems relevant to me and indeed, chart analysis had identified since the end of December that BTC was going to have a better relative behavior than the S&P 500 index on Wall Street.

In the market, this better relative behaviour is reflected in a slower decline in the BTC price compared to the correction of the S&P 500 index since the 4100 points.

Chart revealing the daily Japanese candles of the Bitcoin future contract on the Chicago Stock Exchange

Chart revealing the daily Japanese candles of the Bitcoin future contract on the Chicago Stock Exchange

Will Bitcoin fall below $20,000

How can we explain that the price of bitcoin has not fallen below the $20,000 support level, or how can we explain that the price of the CAC 40 index has returned to its historical record?

A first justification could be the fact that the crypto market has already had its collapse in 2022 and has therefore started its slow phase of bullish reversal. This hypothesis seems a bit random to me, so I prefer another idea, that of interest rates, not nominal, but real.

Real” interest rates are nominal interest rates adjusted for inflation. With inflation rates still at very high levels in Europe and the US, real rates are still negative. As such, Bitcoin would be a hedge against inflation.

And if neither of these explanations convince you, then I invite you to share your opinion in the comments below, I will read them with great pleasure and interest.

Graph showing real interest rates in the Eurozone and the US

Graph showing real interest rates in the Eurozone and the US

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