Bitcoin tested its lowest level since the beginning of March last week, touching the $37,364 mark. And although buyers managed to regain their foothold on Wednesday and attempted to push the price back above $39,000, bitcoin's future outlook looks vague.
The entire cryptocurrency industry remains under pressure due to the Fed's monetary policy tightening. The beginning of an aggressive rate hike cycle, followed by the announcement that the Federal Reserve intends to start reducing its nearly $9 trillion balance sheet, has already caused a significant strengthening of the US dollar. Since the beginning of the year, the US dollar index has recovered by more than 10%, hitting its 20-year high. It is worth noting that the greenback is rising against alternative assets.
Last week, the total digital asset investment products outflows amounted to $120 million, with the most significant outflows seen by BTC, ETH, ADA, SOL, and XRP. Let us recall that most digital currencies were created to compete to depreciate traditional currencies, especially in light of fast-increasing inflationary risks. However, even though inflation in the United States exceeded 8.5% over the past year, soaring at its fastest pace in more than 40 years, the US dollar strengthened anyway, becoming a more attractive investment than its blockchain-based counterparts.
Meanwhile, BTC is still positively correlated with the US stock market, primarily with the NASDAQ Technology Sector Index. This indicates that the world's most popular cryptocurrency has not become a safe-haven asset, the demand for which should increase during periods of economic uncertainty. Instead, Bitcoin mimics the dynamics of risky assets, just like them, driven by market sentiment.
In other words, the more aggressively the US regulator hikes its interest rates, and the higher Treasury yields rise, the less chance BTC has to return above $50,000. On Tuesday, the yield on 10-year Treasury notes exceeded 3%, reaching its highest since 2018. With such debt market indicators, it's not surprising that traders find the stock market less and less attractive.
It is worth noting that an economic situation where indices and bond yields grow simultaneously is impossible. Considering that the Fed is serious about ensuring a neutral federal funds rate somewhere in the range of 4.5-5.5% as soon as possible, the regulator is only at the very beginning of its policy tightening.
Such prospects promise a protracted period of investors' negative attitude to risk, leading to major sell-offs in the US stock market. The dollar and Treasuries will be the only beneficiaries, which Bitcoin cannot compete with, at least for now. Against this background, we recommend shorting BTC/USD with a target of $30,000.