Since the middle of July, the bitcoin price has shown itself resilient to multiple fundamental challenges, in particular a second wave of incipient inflation and renewed debate about the likelihood of a recession in the West. But in the face of the Federal Reserve’s firmness and maximum inter-market pressure, the price of BTC is continuing its retracement movement.
Bitcoin is under near maximum fundamental pressure
Will bitcoin crack? Will it bend its knees in the face of adversity after struggling with all its might since mid-July to contain the repeated and redoubled onslaught of market fundamentals and broad inter-asset class correlations?
The price of bitcoin remained stable on the $29,000 support for 4 weeks, while the equity market corrected, particularly Nasdaq stocks. Within the crypto market, some altcoins proved and are proving even more resilient than BTC, but the pressure eventually became too great.
What kind of pressure are we talking about? BTC can have contradictory reactions to global macro fundamentals.
Some bad fundamental news has even been used in the past to push up the price of bitcoin. Take, for example, the US regional bank crisis last March, which triggered a rescue plan from the Fed and a rise in the general level of liquidity that was very buoyant for the crypto market.
Last week’s resurgence of this US bank issue via credit rating downgrades by Moddy’s also seemed to benefit BTC, albeit to a lesser extent.
There has also been a fall in the Chinese currency, the Yuan Renminibi, under heavy pressure from the monetary policy of the Central Bank of China (CBoC), which is trying in vain to stabilise the Chinese economic slowdown and save its domestic property sector. In general, Chinese savers may be inclined to use bitcoin as a hedge against the fall in their currency against the US dollar.
But alas, the most important fundamentals, in particular the second wave of inflation and the growing likelihood of an economic recession in the West, are a continuing source of downward pressure on the price of BTC.
This bearish process is taking place via the usual mechanism of large market correlations, the uptrend in the US dollar on the forex market and market interest rates at their annual record highs.
To ensure that the BTC retracement does not turn into a crypto-crash, salvation can only come from an easing of these correlations or from very positive news specific to the ecosystem.
Chart showing weekly (left) and daily (right) Japanese candlesticks for the US dollar against a basket of major currencies
Graph showing weekly Japanese candlesticks for the US 10-year bond yield
On a technical level, will the bitcoin price crack in the face of so many fundamental challenges?
In terms of technical analysis of the bitcoin price, the pattern is unchanged with a retracement extending below major technical resistance at $32,000. To maintain a significant probability of a rebound, the market must not fall below support at $27,500, i.e. 61.8% retracement of June’s rise.
As for the longer term, the $25,000 support level is still the guarantor of the annual uptrend.
Graph produced with the TradingView website showing the weekly closing price of bitcoin
