In recent weeks, the cryptocurrency market has experienced notable fluctuations, with Bitcoin (BTC) standing out in its volatility. After initially benefiting from a surge at the beginning of the week, BTC sharply declined by 3.5% to an intraday low of $84,120 as of March 28. This price dip coincided with a rejection at the descending trendline, marking a significant point of resistance for investors.
Examining Bitcoin’s price movement on the daily chart reveals that it has once again dipped below the 200-day exponential moving average (EMA). A sustained close below this critical indicator may indicate further downside potential, raising concerns among market participants.
Global Liquidity and its Impact on Bitcoin Pricing
According to macroeconomic analyst Capital Flows, if current liquidity conditions persist, Bitcoin could experience a correction towards the $72,000 to $75,000 range. Macroeconomic liquidity embodies the overall capital available in the financial system, which can readily be allocated to risk-associated assets, such as equities and cryptocurrencies. This liquidity is subject to influences from interest rates and regulatory policies from the US Federal Reserve.
Current trends suggest that Bitcoin is increasingly correlating with traditional risk assets, but it still remains on the periphery of the risk curve. For significant capital inflows to Bitcoin, investor sentiment must shift towards favoring riskier assets over safer options like government bonds or stable low-risk equities. As articulated by Capital Flows:
“Broadly speaking right now, the macro liquidity backdrop is neutral. Rates have come down marginally, but the carry trade continues to create risk for assets.”
Conversely, some analysts maintain that the rise in the global M2 money supply could initiate a rally for Bitcoin. The correlation between M2 growth from major central banks and Bitcoin’s price movements has been historically significant, hinting at potential upward trends.
Colin Talks Crypto, a prominent commentator in the crypto space, suggests that the predictive correlation between M2 supply and Bitcoin may foresee a rally around May 1, extending over a two-month period. However, it is crucial to differentiate between macro liquidity and M2 growth; while M2 reflects the total money supply, macro liquidity assesses the ease of capital movement towards risk assets. As emphasized by Capital Flows:
“The quantity of money in the system isn’t expanding like it used to.”
Addressing the CME Gap and Market Sentiments
Bitcoin’s recent market activity has also led to the creation of a CME gap between $84,435 and $85,000. This gap—indicating the difference in closing and opening prices of CME Bitcoin futures—has historically been filled shortly after its creation, posing both a potential support and resistance level for traders.
As evidenced by the current chart, Bitcoin filled the CME gap before the daily close on March 28, which opens the door for possible short-term bounces. However, caution is warranted as crypto trader HTL-NL has flagged concerns over potential long-term corrections, suggesting support at $76,700 with the possibility of prices dropping below $74,000.
Furthermore, technical analyst Crypto Chase has stated that Bitcoin’s situation is critical, thereby urging traders to be vigilant:
“Either holds this FVG / 2 weeks ago high at 8527,0 or it fails, and I’ll look for a short on retest targeting build up liq near 80K.”
In light of these developments, the current landscape of Bitcoin and the broader cryptocurrency market illustrates a convergence of opportunity and risk. As always, investors are encouraged to conduct their due diligence and remain cautious, as every investment venture entails inherent risks.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
