Bitcoin prices look to be struggling with buyer exhaustion, having put in a negative performance in the last 24 hours despite positive developments on both the macro and technical fronts.
The top cryptocurrency by market value fell from $9,760 to $9,100 during Wednesday’s U.S. trading hours, even though major investment banks like JP Morgan and Goldman Sachs called for an increase in the size of the inflation-boosting government bond purchase programs run by the Federal Reserve and other major central banks. Bitcoin is increasingly eyed as an investment alternative that isn’t prone to inflation.
“The level of the expected increase in supply this year – about $2.1 trillion – is offsetting the $1.9 trillion demand for bonds to the tune of $200 billion,” JP Morgan said.
The bank is essentially predicting a rise in bond yields and a fall in prices due to the shortage of demand in the bond markets. An uptick in yields or borrowing costs may discourage investors and corporations from borrowing and investing, prolonging the coronavirus-led economic downturn.
As a result, analysts at JP Morgan think the central banks would have to ramp up their bond purchase programs in order to keep yields depressed. Goldman Sachs strategists echoed similar sentiments last week.
Even so, bitcoin, which is widely touted as digital gold due to its limited supply and programmed supply cut at regular four-yearly intervals, fell on Wednesday and remains under pressure near $9,390 at press time, representing a 3.8% decline on a 24-hour basis, according to CoinDesk’s Bitcoin Price Index.
The decline looks more surprising due to the fact that technical studies have been biased bullish from the start of the week. For instance, last week’s candle penetrated an 11-month falling trendline, confirming a bullish breakout. Further, the 50- and 200-day averages produced a “golden crossover” earlier today, signaling long-term bullish conditions (as technical theory suggests, anyway).
With buyers unwilling to step in despite the bullish signals, the cryptocurrency looks vulnerable to deeper pullbacks.
Some observers have suggested that on-chain movements of bitcoins caused a decline in prices on Wednesday. Selling pressure strengthened after a dormant address moved some of the earliest mined coins for the first time in 11 years.
The subsequent recovery was shallow, and prices faced rejection at $9,600 early on Thursday before falling back to lows under $9,400. While, Wednesday’s price dip was an opportunity for investors to snap up bitcoin amid bullish macro developments, the weak bounce suggests most chose to remain on the sidelines.
Signs of buyer exhaustion is not surprising, as the cryptocurrency has rallied by over 150% in the past two months. The rally was likely fueled by the bullish narrative surrounding the reward halving, which took place on May 11, and due to the unprecedented amounts of liquidity injected by major central banks into the traditional markets. The G7 central banks purchased more than $1.3 billion worth of bonds in April, as tweeted by Jeroen Blokland, a portfolio manager for the Robeco Multi-Asset funds.
Analysts at Stack, a provider of cryptocurrency trackers and index funds, expect bitcoin to consolidate in the range of $8,000–$10,000 for some time.
From a technical analysis standpoint, immediate support is seen near $8,970 at a trendline rising from March lows.
Acceptance under the ascending trendline support would expose the 200-day moving average located near $8,000.
So far, the confirmation of the golden cross has failed to invite stronger chart-driven buying. The indicator tends to lag prices and trapped traders on the wrong side of the market earlier this year, as warned by Darius Sit, co-founder and managing director at Singapore-based QCP Capital.
On the higher side, $10,000 is the level to beat for buyers.
By Omkar Godbole