Bitcoin was attempting to bounce back as risk appetite improved with global equity indices extending their weekly gains after last week’s slump. Still, with the dollar remaining bid following the hotter-than-expected US CPI report and hawkish Fed commentary yesterday, this was in part keeping the upside limited. Recently, Bitcoin has come under some intense selling pressure, with the cryptocurrency falling in each of the past 5 weeks. Now, there is a risk that we could see a return to $70K or even $65K (the point of origin of its late-August breakout) unless macro conditions improve markedly.
Bitcoin key levels to watch
From a technical analysis point of view, the big move up from around $65,000 at the end of August has stalled, and momentum has been completely lost over the past month and a bit. While BTC was trying to bounce off its 200-day moving average and a historical level near $73.8K, marking the March 2024 high, sentiment remained downbeat and this could turn out to be another dead-cat bounce. Until we see a key reversal stick, the risks remain tilted to the downside for the Bitcoin price.
The most important level is the area just below $75,000 – namely, the low formed on 15 September, which preceded the last rally that failed to hold above $85,000. Since then, Bitcoin has carved out a series of lower lows and lower highs, raising the risk of a sharp drop to fill the void left by that rally. That puts $70,000 in focus, ahead of the breakout's point of origin around $65,000, with an additional target in between at 67,000.
For the bulls, a quick recovery back above $75,000 is needed, along with a hold above the 200-day moving average and the March 2024 record high at $73,795 (both were being tested today).
Hot CPI strengthens the case for further rate hikes
More inflation data is to come later this week in the form of PPI, which could put the US Dollar Index and by extension gold and BTC/USD in sharp focus again.
Yesterday, we had CPI data which was hotter, sending Bitcoin and gold lower as stock indices eased in immediate reaction. Since then, the major indices have rebounded again, but the dollar has also climbed higher. Headline consumer prices rose 0.4% month on month in October against expectations of 0.3%, while core CPI climbed 0.3% versus a forecast of 0.2%.
The detail of the inflation report offered little comfort. Food prices jumped 0.5%, energy rose 0.7% and gasoline climbed 1.0%, while housing costs increased 0.3% and real earnings for private-sector workers were unchanged. Coming after a stronger-than-expected employment report, the data strengthens the case for further Federal Reserve rate hikes. For a non-yielding, speculative asset such as Bitcoin, that raises the opportunity cost of holding it.
Stalled Pro-Crypto Legislation
Perhaps the biggest concern right now is the Democratic sweep at the U.S. midterms, which severely dims the immediate prospects for key industry-backed legislation like the Clarity Act.
The bill, which aimed to reclassify certain digital assets as commodities to reduce regulatory oversight, is now expected to face steep resistance or remain gridlocked
As a results, we have seen a significant reversal in institutional demand. Last week US spot Bitcoin ETFs recorded around $1.28 billion in weekly outflows, while more than $1 billion in leveraged crypto positions were reportedly liquidated within just 24 hours last Thursday.
Bitcoin trades like a high-beta tech proxy
Bitcoin has also struggled to decouple from technology stocks, behaving less like an alternative asset and more like another high-beta expression of risk appetite. A relief rally is possible after such a sharp decline, but a durable recovery would probably require improving ETF demand, a friendlier macro backdrop and evidence that leveraged selling has run its course.
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