The Bitcoin price has dropped over 5% on Tuesday to below $60,000 due to the disappointing performance of the first day of spot Bitcoin ETF trading in Hong Kong. This, coupled with fresh US economic data indicating stubborn inflation and strengthening arguments against cutting interest rates, has led to the potential for a near-term correction in Bitcoin’s price into the $50,000 range. The resistance at the 21 and 50DMAs since mid-April, along with the formation of a descending triangle, suggest a bearish breakout may be imminent. If Bitcoin breaks below $60,000, a quick retest of $53,000 is possible, resulting in a 12% drop from current levels and a pullback of nearly 30% from its all-time highs in March.
The launch of spot Bitcoin and Ether ETFs in Hong Kong fell short of expectations, with total trading volumes amounting to under $12.5 million. This was a significant disappointment to the market, leading to a substantial drop in the Bitcoin price following the release of these numbers. Inflows into spot Bitcoin ETFs in the US have also slowed, with net negative flows since the previous Wednesday. Despite the disappointing debut in Hong Kong, the availability of these ETFs in a major financial center marks an important milestone for the crypto industry.
Macroeconomic headwinds, such as higher than anticipated inflation in employment costs in the US, have added to the selling pressure in the market. Data from Q1 shows that employment costs increased by 1.2%, accelerating from the previous quarter and surpassing market expectations. As a result, concerns about inflation remaining above the Fed’s target of 2.0% have grown. Fed policymakers appear comfortable with the market’s recent adjustment of rate cut expectations, with the possibility of no rate cuts by September increasing to 50%. The US Dollar Index and US government bond yields are trading at recent highs, potentially impacting Bitcoin’s performance in a tightening financial environment.
Despite the current challenges facing Bitcoin, including weak ETF inflows, tightening financial conditions, and bearish technical indicators, the overall bull market trajectory for Bitcoin may not be over. The cyclical nature of Bitcoin’s price movements, coupled with the recent halving event, suggests that there is still roughly 1.5 years of potential bull market left. The current correction following the halving may lead to new all-time highs in late 2024 or 2025. Additionally, as interest rates in the US likely peak and eventual rate cuts are expected, easier financial conditions could benefit the market in the future.
Factors such as continued ETF inflows, the narrative of Bitcoin as a digital gold, and potential safe-haven demand could further boost Bitcoin’s price in the future. Many potential buyers of US ETFs have yet to enter the market, and the trend of Bitcoin as a reserve asset is gaining momentum. As more companies and countries adopt Bitcoin, and as geopolitical and financial stability concerns persist, Bitcoin may continue to attract demand. Despite the challenges posed by the current economic environment, the outlook for Bitcoin as a valuable asset remains positive. Traders should be cautious, however, as crypto assets are high-risk and volatile.
