Investors looking for clues on bitcoin's recent failure to cheer continued accumulation by the Luna Foundation Guard (LFG) should consider the ever-growing list of macro risks and what's happening in traditional markets.
According to MKT57 data, the world's largest cryptocurrency fell below $42,000 during European hours, reaching the lowest level since March 22 and extending the decline from the late March high of $48,240. The continued decline occurred despite LFG adding $173 million in bitcoin to its wallet over the weekend, bringing total holdings to nearly 40,000 BTC.
According to Noelle Acheson, head of market insights at Genesis Global, the weakness may be due to traditional investors refusing to follow LFG's lead, given the numerous economic and political uncertainties that plague risk assets.
"The DXY strength is part of it, but overall it's more market uncertainty, macro concern and a focus on what rates will do," Acheson stated this in a Telegram chat.
TradingView & Bitcoin
According to data from charting platform TradingView, the dollar index, which measures the value of the greenback against major currencies, reached two-year highs above 100 early today, bringing the year-to-date gain to 4.3 %. This month, the global reserve currency has increased by 1.5 %.
Bitcoin & US Dollar
According to Kevin Kelly, co-founder and global head of macro strategy at Delphi Digital, the dollar and bitcoin have an inverse relationship. "2017 was one of the worst years for the dollar, and it coincided with a massive run in bitcoin," Kelly said in a March analyst call. "In early 2021, we saw the price of bitcoin skyrocket. This was due to the weakening of the US dollar.""When the DXY has reached highs and climbed further, it usually indicates further declines in other assets, whether it is the stock market, cryptocurrencies, or FX," said Griffin Ardern, volatility trader at crypto asset management firm Blofin.
This is especially true given that the ongoing dollar rally is being fueled by hawkish Federal Reserve officials who are calling for a faster pace of interest rate increases and a reduction in the size of the Fed's balance sheet in order to combat rapid inflation. Policy tightening is viewed negatively by risk assets, including bitcoin.
According to a Reuters poll, the Fed will likely raise interest rates by 50 basis points during its May and June meetings, after raising borrowing costs by 25 basis points the previous month. The 10-year treasury yield in the United States has reached a two-year high of 2.7%.
Concerns have also been raised about the cryptocurrency's sensitivity to equity markets. With markets pricing faster Fed tightening, the availability of liquidity to allocate to high-growth sectors is dwindling. "We're also hearing more and more about tech company shutdowns, layoffs, and/or dwindling term sheets," Acheson said.
As a result, as predicted by Arthur Hayes, co-founder and former CEO of crypto spot and derivatives exchange BitMEX, tech stocks may experience a significant correction.
Furthermore, with the ongoing Russia-Ukraine war, there is virtually no chance that central banks will resort to liquidity-pumping policies anytime soon.
If that isn't enough, the odds of Marine Le Pen, a far-right candidate and European Union (EU) skeptic, winning France's presidential elections may keep markets on edge.
European stock futures fell early today after polls revealed that French President Emmanuel Macron and nationalist rival Marine Le Pen received the most votes in the first round of voting on Sunday, with 27 % and 24 %, respectively. Some investors are concerned that Le Pen will be able to close the gap by consolidating anti-Macron votes before the April 24 final round.
"We have the results of the voting yesterday in France, which could - depending on how the next round goes on April 24 - bring even more currency turmoil," Acheson added.
"And with so much uncertainty and nervousness, especially given the historical volatility of crypto assets," Noelle remarked, "macro investors are choosing to sit on the sidelines until there are enough signals to take directional bets with some conviction."
DISCLOSURE
The author's or anyone else's views or opinions expressed in this article are for informational purposes only and do not constitute financial, investment, or other advice. Investing in or trading in crypto assets carries a financial risk.
IMAGE CREDIT
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