Despite a fundamental framework that remains very restrictive for risky assets on the stock market (equity market & crypto market), resilient inflation and a significant probability of a recession within 12 months, the price of bitcoin remains in a sideways position below the major technical resistance at $25,300. Let’s take stock on the fundamental and graphical level.
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Bitcoin’s Strong Link to the Cost of Money and the US Dollar Trend
Inflation has been public enemy number one for the financial markets for 18 months now. Its initial vertical surge followed by its current decline, which is still considered too slow by central banks, is keeping financing costs at a very high level and on an upward trend.
It is also relatively surprising (a good surprise) that the crypto market has managed to show resilience in the face of the latest update of the inflation rate in the United States. The latter is certainly down from 6.5% (on an annual basis and for the CPI price index) to 6.4% but the momentum of the decline is slowing down. By the way, it is the session on Friday February 24 (the anniversary of the outbreak of the war in Ukraine) that will see the update of the PCE price index, the one most watched by the Federal Reserve of the States. States (FED).
In order for the bullish rally in the price of Bitcoin (BTC) to continue, it is necessary to see the development of the decline in inflation rates over time.
But back on topic. In my article last week, I highlighted the very strong link between the evolution of the price of cryptos and the evolution of overall net liquidity within the Western financial system. The latter is linked to the monetary policies practiced by the FED and the ECB.
Above this overall net liquidity factor, in the architecture of BTC’s underlying trend, are two keystones. If you remove these two key pieces, then everything collapses, they are:
The trend of the US dollar in the foreign exchange market; From the absolute value and the dynamics of financing costs, clearly the cycle of interest rates on the market.
By studying the price trend of bitcoin for 14 years, it is now accepted that the major bull market phases for BTC are linked to periods when the US dollar does not show a strong bullish trend against Forex and when rates interest tend to remain at a low level.
The first graph below reveals the strong link between these two metrics and BTC since the start of the health crisis in 2020. As you can see, the inverse correlation relationship is quite obvious.
By conclusion, In order for bitcoin to break above the extreme technical resistance of $25,300, it is imperative that market interest rates do not set new short-term annual highs.
Chart that juxtaposes 3 pieces of information: the price of bitcoin in weekly Japanese candles, the US dollar on Forex and the cost of money represented by the US 2-year bond interest rate.
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Bitcoin, short-term technical point
Let us now return to technical analysis of bitcoin price holding below major resistance at $25,300 as I write these few lines. This chart level represents a very strong polarity shift threshold, last spring lows and summer 2022 rebound high. The market would need to post a significant daily close and with trading volume for this lock jumps, which is not an easy task.
To summarize, here are the important graphic thresholds of the moment:
The support zone at 20000/21200 dollars below which the rebound would be invalidated; Short-term support at $23,300; Major resistance at $25,300.
For fun, if the resistance is breached, the next significant level would then be at $28,800.
Chart that shows the daily Japanese candles of the Bitcoin futures contract on the Chicago Stock Exchange
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Vincent Ganne is a market strategist, technical analyst, trainer on the stock market and speaker on BFM Business. With a long experience in the field of analysis, he offers a global approach to financial markets. Both from a macroeconomic point of view and from a microeconomic point of view. Vincent Ganne also uses many aspects of chart analysis with the aim of forecasting trends in financial assets over the medium and long term.
Vincent Gane
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