Bitcoin week ahead Ep22: DON’T BUY THE F***ING DIP!

YEREVAN (CoinChapter.com) — Good morning, crypto folks! Some of us should be excited about how Bitcoin rebounded by nearly 25% just three days after crashing to its July 2021 low of around $25,000. The nice bump came last week, mainly because traders want to see Bitcoin near $30,000 — that extraordinary psychological level that separates the BTC price trends between bearish and bullish.

But the chances are that everything will go back to becoming gloomy. Nobody has called the “bottom” yet despite the interim buying activities.

Recession risks hurt Bitcoin

Bitcoin dropped by nearly 7% at this week’s open, reaching an intraday low of $29,277 (data from Coinbase). Not so surprisingly, the benchmark crypto’s plunge appeared in line with similar downside moves across the U.S. index futures, reiterating fears that the so-called “digital gold” has been trading synchronously with the riskier assets.

The overnight drop across Bitcoin and futures markets appears primarily due to China’s soft economic data for April, which underscores the economy’s downturn owing to Beijing’s strict Covid-19 lockdown policies.

Moreover, the U.S. media has shouted the word “recession” a lot during their weekend coverages, further dampening investors’ sentiment for equity markets. For instance, equity strategists at Goldman Sachs slashed their year-end growth forecasts for the S&P 500 to 4,300 from 4,700, adding that a recession will push the reading below 3,600 points.

Fed policy dampens retail sentiment

The downside sentiment picks momentum mainly because of the Federal Reserve’s sharp hawkish turn, beginning with a 50 basis points internet rate hike two weeks ago. The U.S. central bank plans to stick to its rate-increasing spree and a systematic unwinding of its $9 trillion balance sheet to tame inflation that reached 8.1% in April.

What does it mean for Bitcoin? Of course, the king crypto will risk turning into a puppet in the hands of macro drivers. It has been one so far if one looks at its synchronous trends with the S&P 500 during its recent downside moves.

The logic behind the strong correlation is simple: when equity markets fall, money managers may want to turn to cash by selling their most profitable investments over the year. Bitcoin, which still trades 666% (any ‘Omen’ fans here, anyone?) above its March 2022 lows around $3,858, is an easy way to secure cash in the hard times.

Retail data support the downside scenario. For example, JPMorgan & Chase reports that net retail inflows until May 10 amount to only $2.4 billion compared to $11 billion in April and $17 billion in March. Meanwhile, the average retail investor portfolio valuation has decreased by 28% since late December 2021.

That shows that common Joes, which makes up a bulk of the crypto market, have been reluctant to put their money to work lately. That coincides with a sharp jump in the U.S. dollar rates, with its benchmark index, DXY, rising to its best levels since January 2003 this May 16.

Where does Bitcoin go, then?

To be honest, lower.

Related: El Salvador to hold Bitcoin conference after facing 44% loss from its BTC investment

In addition to macro, Bitcoin faces bearish threats from the kinds of its own (read Terra’s stablecoin fiasco here, for instance). Meanwhile, technicals also point at a decline ahead later this week. For instance, look at the ‘rising wedge’ structure in the chart below.

Does that mean traders buy the next dip? No, of course. It is vital to wait for a proper reversal confirmation, which is confirmed by a rebound that is matched by an increase in trading volumes on longer-timeframe charts. Overall, Bitcoin risks continuing its downside move due to its macro exposure.