- Bitcoin’s 10% rally towards the end of March has since seen it return back to its previous trading range, with no sign of shooting past US$50,000 at the moment
- Macro headwinds and the lack of visible catalysts to propel Bitcoin further will prevent the benchmark cryptocurrency from busting out of its tight trading range that has both bulls and bears lined up equally on both sides
Despite a last-minute bump that saw Bitcoin rally by 10% in the last week of March, the benchmark cryptocurrency has slipped back into a trading range that has dogged it for most of this year.
Into the weekend, Bitcoin was hovering around US$46,000, above the technical resistance at US$45,300 but showing signs that it’s taking a breather from its most recent gains.
Chart watchers suggest that a pullback and consolidation is preferred because it allows for momentum to gather and there may be some logic to that argument.
The faster Bitcoin rallies, the less sustained these rallies tend to be and as the cryptocurrency matures as an asset class, it would be good for Bitcoin to shed at least some of the volatility that marked and marred its early development.
Fundamentally though, there are challenges to even the most optimistic Bitcoin bull.
The highest pace of inflation in 40 years and a robust labor market mean that pressure will be increasing on the U.S. Federal Reserve to quicken its pace of monetary policy tightening, with the prospect of a 0.50% interest rate hike at the next Fed meeting in May greater than ever.
While there are signs that Russia may be looking for an exit to the war in Ukraine, a lack of clarity as to how that post-invasion landscape will look like for commodities means that higher prices are likely to persist for some time.
Right now at least, there is nothing visible on the horizon that could act as a strong catalyst to push Bitcoin’s price northwards in a sustained fashion.
Depending on which narrative an investor subscribes to, excess liquidity in the market is often used to explain the advent and growth of Bitcoin and cryptocurrencies.
As central banks revert to a more normal monetary policy, it’s entirely possible that the tide going out will bring down Bitcoin and cryptocurrencies along with it.
On the other hand, there are also signs that the U.S. Federal Reserve intends to hold its cards close to its chest and would like to engineer a soft landing for the U.S. economy, even as it runs off its balance sheet and hikes interest rates.
Some analysts are also pointing to the level of stablecoins in the system – a key conduit through which cryptocurrencies are purchased and which can portend rallies or declines.
In a note last week, JPMorgan Chase strategist Nikolaos Panigirtzoglou wrote,
“The share of stablecoins in total crypto market cap no longer looks excessive and as a result we believe that any further upside for crypto markets from here would likely be more limited.”
“This share currently stands below 7% which brings it back to its trend since 2020.”
It’s no surprise then that Bitcoin continues to trade range bound.
