The Bitcoin (BTC) price tumbled more than 5% on Tuesday to below $60,000 following a disappointing first day of spot Bitcoin ETF trade in Hong Kong. This was accompanied by fresh US economic data that pointed to sticky inflation and strengthened the argument that the Fed should wait before cutting interest rates.
Having pushed nearly as high as $65,000 in early Asia trade, Bitcoin was last changing hands around $60,000s.
As macro/fundamental headwinds build, technical analysis suggests BTC could be headed for a near-term correction into the $50,000s.
Since mid-April, the Bitcoin price has consistently found resistance at its 21 and 50DMAs, suggesting the bears are in control.
Additionally, the Bitcoin price has also formed a descending triangle in the last few weeks, which typically form ahead of bearish breakouts.
Should Bitcoin break to the south of its recent range lows at $60,000, a quick retest of $53,000 is possible, meaning a 12% near-term drop from current levels.
That would take the Bitcoin price’s pullback from its March all-time highs near $74,000 to nearly 30%.
Hong Kong Spot Bitcoin/Ether ETF Launch Falls Flat
The launch of spot Bitcoin and Ether ETFs in Hong Kong on Tuesday fell flat.
Hong Kong ETF providers had been pumping hype prior to the launch, claiming that the Hong Kong launch could surpass the US launch.
Instead, total trading volumes amounted to just under $12.5 million, according to Bloomberg data circulated on X.
Hong Kong Crypto ETFs were predicted to have $300 million inflows on the first day.
Instead they had a total of $12.4m in total trading volume. pic.twitter.com/YUGgD6ugjh
— wallstreetbets (@wallstreetbets) April 30, 2024
The Hong Kong launch was a big disappointment to the market. It’s wonder that the Bitcoin price saw a substantial dip in the wake of these numbers coming out.
The weak Hong Kong ETF debut comes amid a slowing of inflows into spot Bitcoin ETFs in the US at the same time.
The Block data shows that flows have been negative since last Wednesday.
Still, the availability of these ETFs in one of the world’s biggest financial centers is an important milestone for crypto.
Macro Headwinds Keep Building
A continued build-up of macro headwinds has added to the sell pressure catalyzed by the weak Hong Kong ETF debut.
Data relating to inflation in employment costs in the US came in higher than expected for Q1.
Sticky core inflation…
The US Employment Cost Index rose by 1.2% in the first quarter of 2024, accelerating from a 0.9% increase in the previous three-month period and beating the market consensus of a 1% growth.
Employment costs rose the most in one year, as wages and… pic.twitter.com/SId678qKuT
— Ayesha Tariq, CFA (@AyeshaTariq) April 30, 2024
The news has raised concerns that US inflation will stay “sticky” above the Fed’s 2.0% target.
As per CME data, the market-implied probability of no rate cuts by September is 50%, compared to 6.5% a month ago.
Meanwhile, the probability of no rate cuts this year has risen to 25%, up from 1% one month ago.
According to Bank of America (BoA), the Fed is in “wait-and-see mode until (it) has more clarity on inflation”.
❖ Powell Seen as 'Comfortable' With Repricing of Fed Expectations: Bank of America
The Fed's main message after tomorrow's rate decision is likely to be that "policy needs more time, the next move is most likely a rate cut, and the committee is in a wait-and-see mode until the…
— *Walter Bloomberg (@DeItaone) April 30, 2024
“We suspect Powell is comfortable with the substantial pricing out of cuts this year,” Walter Bloomberg quoted BoA.
Well-respected Fed analyst Nick Timiraos also argued in a recent WSJ article that the Fed will signal “it has the stomach to keep rates high for longer”.
Unsurprisingly, the US Dollar Index and US government bond yields are trading close to recent highs.
The DXY rebounded above 106 on Tuesday and is eyeing yearly highs at 106.50. The US 10-year was last at 4.68% and eyeing a retest of last week’s yearly highs at 4.74%.
Bitcoin tends to perform poorly in an environment of tightening financial conditions (i.e. when the market expects higher interest rates and the dollar and yields rise).
Is the Bitcoin Bull Market Over?
Weakness in ETF inflows, tightening financial conditions, plus bearish technicals could send Bitcoin to the $50,000s imminently.
Would this spell an end to the Bitcoin bull market that began back in late 2022?
While there will undoubtedly be a lot of FUD on social media platforms like X, that is very unlikely.
Assuming Bitcoin follows its usual four-year cycle, the bull market still has 1.5 years to go.
That argument is strengthened by the recent passing of the Bitcoin halving, a major driver of past four-year cycles.
The first three Bitcoin halvings all preceded huge pumps to new record highs, albeit not for at least 4-6 months.
#BTC
Don't let this retrace distract you from where we are in the Bitcoin cycle$BTC #BitcoinHalving #Bitcoin pic.twitter.com/LniRS6xu8u
— Rekt Capital (@rektcapital) April 30, 2024
The question is whether the price action post-halving will be different.
The price action leading up to the latest halving was different. Bitcoin was able to hit a new all-time high prior to the halving for the first time, arguably raising the risk of a post-halving correction, which appears to be manifesting right now.
That doesn’t mean we won’t see new all-time highs after the halving in late-2024 or 2025, however.
And easier financial conditions ahead should eventually come in as a tailwind to the market.
Risks are arguably more tilted towards economic weakness in the US and lower inflation than towards strength.
After all, interest rates are at multi-decade highs and the yield curve has been inverted for well over a year.
Should the US economy weaken, bringing inflation down faster, this would hasten rate cuts.
ETF & Safe-Haven Demand To Boost BTC?
Other factors are also set to boost BTC. Most potential buyers of US ETFs have yet to enter the market.
Many are required to conduct a period of due diligence on the new products before investing. Many others don’t have access yet, as the ETFs aren’t yet offered by their bank/wirehouse.
Risks are strongly tilted towards a continuation of inflows in the coming years. That is to say, it’s very unlikely that current AUM in spot Bitcoin ETFs will not continue rising.
More broadly, the narrative of Bitcoin as “digital gold” will likely continue gaining momentum in the coming years.
BlackRock CEO, Larry Fink, is literally on Fox Business arguing with the host about why #Bitcoin is the modern day digital gold, how it protects you from inflation and removes counter party risk associated with governments.
The narrative is changing! 🤯pic.twitter.com/OOSAs4eHjt
— The ₿itcoin Therapist (@TheBTCTherapist) March 9, 2024
More companies and countries will also likely adopt it as a reserve asset as Wall Street ups its allocation.
Bitcoin may also continue to attract safe-haven demand if geopolitical/financial stability concerns resurface.
Fed rate hikes have put a major strain on many regional US banks, and trouble could reappear at any moment.
Traders will remember the March 2023 Bitcoin price pump as various banks collapsed.