© Reuters
Investing.com – Until the onset of the coronavirus pandemic, the price traded independently of stock markets. It was therefore considered a good addition to a balanced portfolio.
But the situation changed significantly after central banks started injecting huge amounts of liquidity into the market in order to mitigate the negative effects of the pandemic. Despite the global economy slowing and supply chains breaking, stock markets and the market hit new highs. Much of the extra money from the central bank has been invested not only in traditional assets, but also in digital assets. Since then, bitcoin has been correlated with securities.
The runaway momentum led to the start of changing its monetary policy stance last fall. Rising interest rates and shrinking balance sheets resulted in a drying up of liquidity, which is why bitcoin traded lower, as did equity markets.
The International Monetary Fund (IMF) has warned of the risk of a severe global recession in 2023. At the same time, more and more central banks are tightening monetary policy, as this is the only way to absorb inflation growing.
If a severe recession were to really occur, risk aversion in the markets would increase, which would also deprive bitcoin of additional financial resources.
Director of Midas Touch Consulting, Florian Grummes, assumes that BTC will break through the $18,000 support and expect a test of the $10,000 mark. As a worst-case scenario, Grummes evokes a fall to 6,000 dollars. But according to Grummes, the next bull market will definitely come, most likely around the halving in May 2024.
Until then, cryptocurrencies should also have the wind in their sails again on the monetary policy side, because if inflation is combated by an increase in interest rates, rate cuts and bond purchases are the established cure for a recession.
Important technical benchmarks for bitcoin
Bitcoin is currently losing -0.58% at a price of 18,999 dollars, while the weekly loss amounts to -6.05%.
The cryptocurrency remains below the 78.6% Fibo retracement at $19,251. This is the third consecutive daily closing price below this level, which argues for an extension of losses towards the low of September 21st. This sits at $18,191 and if the bulls fail to defend it, expect a test of the cycle low of $17,630.
This scenario can only be avoided if the 78.6 percent Fibo retracement is regained in a sustainable manner. A correction of losses would then be possible towards the psychological mark of $20,000 and the 61.8 percent Fibo retracement of $20,523.
By Marco Oehrl