Bitcoin (BTC), as the world’s leading cryptocurrency, continues to suffer from its increasing correlation with US stocks at a time when the Federal Reserve has been bent on striking risky assets to limit the wealth effect spreading through the US economy, thus hoping to subdue consumer spending and quell the inflationary impulse. Present.
For a refresher, the Federal Reserve chose to raise its benchmark interest rate by 50 basis points this Wednesday, unleashing a sharp rally in assets as investors breathed a sigh of relief to avoid a 75 basis point hike. However, a rally inversely liquidated negative hedges, leaving the market vulnerable to negative pressures. This bottom came on Thursday when the market suffered its biggest loss since 2020. Considering the fact that Bitcoin’s 60-day relationship with the S&P 500 is now above 0.6, hitting a new all-time high in the process, the bottom has been decisive. Almost certain. Keep in mind that the current correlation reading indicates that more than 60 percent of bitcoin’s moves are explained by the corresponding moves of the S&P 500.
Technical analysis indicates that Bitcoin is poised for a bounce, and on-chain metrics concur
The above chart highlights the pivotal price levels to watch for Bitcoin. As can be seen, the price of the cryptocurrency is currently standing on the cusp of a major support zone. Moreover, there is another support zone below the current zone. This means that the broader support area extends all the way to the $29,000 price level.
If these support areas hold, Bitcoin could continue its consolidation pattern, building ammunition for an eventual rally. For the uptrend to continue, the cryptocurrency needs to break above the medium-term downtrend line (indicated in red) and also decisively cross the major resistance located around the $45,000 price level (indicated in purple).
Going forward, exchange-based and on-chain Bitcoin metrics suggest that a rebound is in place, strengthening the possibility that the support areas described above will continue to hold.
For example, on May 5th, Bitcoin experienced the highest liquidation of long positions since February 7th. High liquidations are often a sign of capitulation, paving the way for a sustained upward slope.
This observation is supported by the fact that Bitcoin balances held on exchanges have decisively increased in recent days. As a refresher, Bitcoin balances held in exchanges are an early indicator of liquidations, as cryptocurrency balances on exchanges are more likely to liquidate compared to those in cold storage.
Turning to the on-chain metrics, a sentiment reading of an active Bitcoin address indicates that the bounce is now in order. This metric compares the 28-day change in Bitcoin’s price with the same period change in active addresses. The current reading indicates that short-term sentiment has now entered the oversold territory.
The reserve risk measures the long-term confidence of bitcoin holders in relation to the current price of the cryptocurrency. The current reading has now entered the support levels marked in green. This indicates that long-term Bitcoin holders have more confidence in Bitcoin’s outperformance relative to the current price level.
In our previous post on the subject, we predicted that Bitcoin would likely test the $37,000 price area. This expectation is now over. We are now actively looking for a significant bounce in the cryptocurrency price. However, given the prevailing high correlation regime between Bitcoin and US stocks, a retest of the $29,000 price area followed by a subsequent massive rally remains a viable possibility.