Bitcoin’s long-term bullish outlook is in danger of being invalidated on technical charts as the cryptocurrency reels under selling pressure, stemming from adverse macro factors.
The cryptocurrency’s monthly moving average convergence divergence (MACD) histogram has crossed below zero, a so-called “sell signal,” indicating a bullish-to-bearish trend change on the longer duration price chart.
“There is an unconfirmed monthly MACD “sell” signal that would support a long-term bearish bias if confirmed alongside a breakdown [of support at $37,400],” Katie Stockton, founder and managing partner of Fairlead Strategies, said in the past week’s research note.
Bitcoin traded under $37,400 at press time, having violated the support earlier this month. The MACD must remain negative through Monday’s UTC (23:59) close to confirm the sell signal.
The monthly MACD last crossed into bearish territory in July 2018. The cryptocurrency more than halved to $3,500 in subsequent months, extending the decline from record highs near $20,000.
That said, technical studies like MACD, which are based on backward-looking moving averages, are less reliable than fundamental or macro factors. Coincidentally, as of now, macro appears to have aligned in favour of the bears.
Bitcoin is staring at a third straight month of losses amid heightened fears of global monetary policy tightening.
The top cryptocurrency by market value was trading near $36,960 at press time, representing a 20% drop for January. Prices slipped 7% and 19% in November and December, respectively, CoinDesk data shows.
“The correction is driven by macro factors, specifically expected rate increases and liquidity tightening from the U.S. Fed. The 60d correlation between BTC and the S&P 500 was virtually 0 at the end of 2017 – now, it is over 65%,” Noelle Acheson, head of market insights Genesis Global Trading, said in a LinkedIn post titled “Did You Say Crypto Winter.”
Last Wednesday, the U.S. Federal Reserve (Fed) set the stage for faster withdrawal of crisis-era stimulus. Since then, several Wall Street banks, including Goldman Sachs, have penciled in five quarter percentage point rate hikes for this year. The market has priced in a 25 basis point hike in March. On Friday, Atlanta Fed President Raphael Bostic told Financial Times that the central bank may surprise with a 50 basis point hike in March.
Speculation is now doing the rounds that other central banks may the Fed’s lead, complicating matters for bitcoin and other risk assets.
With price pressures being elevated globally, central banks perhaps have a reason to deliver tit-for-tat rate hikes and support their respective currencies against the dollar. A strong currency pulls down import costs, helping keep inflation under check.
Fed calls this week
• JP Morgan (Fri): 5 hikes this year (Mar, May), 3 next year
• BofA (Fri): 7 this year (every meeting), 4 next year
• Morgan Stanley (Thurs): 4 this year (Mar, Jun)
• Deutsche Bank (Wed): 5 this year (Mar, May, Jun), 3 next year
All hikes are ¼ pt
— Nick Timiraos (@NickTimiraos) January 28, 2022