Why Bitcoin could be poised to fall further

Under the pressure of monetary pressure from central banks, Bitcoin (BTC-USD) is trading “as the most expensive tech stock,” as one analyst noted. That could mean poor performance over the next few months.

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Bitcoin started trading this week above $ 40,400 on Sunday ahead of its correction Monday morning where it dropped below $ 39,000 during Asian trading hours. After recovering on Monday, the cryptocurrency exchange rate rose slightly above $ 42,000 before returning to $ 41,168 on Wednesday afternoon.

Meanwhile, global market capitalization for all crypto assets is currently holding $ 1.90 trillion, a 2% increase last month from $ 1.85 trillion, according to reports.

No one really knows what Bitcoin, representing 40% of the crypto market total, will do in terms of stocks during this phase of financial instability. One analyst projects over the next few months may be rocked when considering how technical stocks have fared during the Fed’s previous consolidation cycle.

In moderate crypto exchanges, Bitcoin consumer interest rates dropped to less than 10 months, according to a report from blockchain research company Kaiko.

Last week's trading volume of blue chip cryptocurrencies, Bitcoin and Ether (ETH-USD), reached its lowest level since June 2021.

Much of what analysts say is the ever-increasing correlation between cryptocurrencies and technically risky stocks taken better by the Nasdaq. Netflix dropped more than 35% after a pay rise on Tuesday, showing it had lost its first subscribers in 10 years. Citing the epidemic limits that slow down the decline, some analysts are beginning to see it as the latest swan song of the genre with Nasdaq Composite sold 15% so far this year.

"The technology sector has had a difficult year due to the dramatic change in interest rates and results such as Netflix are not helpful," Oanda analyst Craig Erlam wrote in a research paper on Wednesday.

At the time of the sale, Bitcoin's 30-day relationship with technology stocks had risen to an unprecedented level since the epidemic increased its technology earnings in July 2020, according to Vetle Lunde, analyst with digital assets, Arcane Research.

The 10-day and 30-day Bitcoin relationship on the Nasdaq index has risen in 2022. Currently at 0.7, the 1 sign is related to Bitcoin and the Nasdaq index performing a lock step. At the same time, its trajectory with gold and the strengthening of the US dollar has deteriorated.

During the period of financial consolidation, technological decline may be associated with rising interest rates, making borrowing more expensive. The result is that they will have less money to grow their business.

But as Lunde points out, Bitcoin does not report earnings and therefore should not be expected to trade between rising interest rates, therefore, its relationship with technology should be temporary.

Lunde told  that the link between the two "may be due to [algorithmic] traders associating BTC with technology, leading to the growth of the relationship, in addition to investors seeking to withdraw shares in both BTC and Nasdaq in order to reduce state risk. uncertain. ”

Sean Farrell, vice president of digital assets strategy with Fundstrat, also noted the growing merger between Bitcoin and tech last week in a research report.

If Bitcoin continues to trade as "the most expensive tech stock" during the fast-growing cycle right now, Farrell has indicated that the commodity could be heavily traded in the next few months as the Federal Reserve begins to "cut its balance sheet."

Using the performance of the Invesco ETF (QQQ), which closely monitors Nasdaq, Farrell noted that technical stocks continued to see gains in the area of ​​rising interest rates during the previous Federal Reserve crash cycle from 2017 to 2019.

However, "this is where the rate hike is accompanied by accelerating price consolidation where QQQ receives a significant decrease," he explained. While it may be difficult to predict what the volatility will do to the market in this cycle, Farrell warned of the effect of the reduction. The effect of liquidity on tech can undermine Bitcoin if the relationship does not break down.

“Looking at the macro setting, I think we are looking forward to another challenging time of the year so far. At that point, this year we have seen the support of big Bitcoin buyers at the $ 33,000 to $ 35,000 level. I'm not sure we will go further than that, ”added Farrell.

To be sure, both Farrell and Arcane Research’s Lunde are unsure if BTC’s high affinity for technology will continue.

Lunde suggested that a break from the connections could come from changing market structure such as "new companies exploring BTC-related strategies, reputable new investors talking about bitcoin, or advances in land acquisition."

Although the value of Bitcoin is a constant target, enthusiastic fans often equate it with digital gold. Earlier this month, Alex Thorn of Galaxy Research told that it was looking at this, "a future option where bitcoin is considered a digital asset."