When a broad class of assets is experiencing a rapid rally amid the approaching end date of the Federal Reserve's monetary tightening cycle, Bitcoin's unwillingness to rise is a troubling sign. Investors are buying everything they can against the U.S. dollar. However, the cryptocurrency is reluctant to spread its wings, even in such favorable conditions. Why is that? And will it be a reason for a BTC/USD pullback?
The slowdown in consumer prices in the U.S. to 3%, the lowest level in two years, allowed the S&P 500 to soar to 15-month highs while simultaneously causing the USD index to plummet to a 15-month low. The market seriously believes that the rate hike in July will be the last in the current cycle and hopes for a soft landing of the U.S. economy. However, only one thing is obvious—its growth rates will slow down.
According to the dollar smile theory, this is the worst time for the USD index. And assets traded in U.S. dollars are taking advantage of this. Investors are snapping up stocks and bonds like hotcakes, and oil and gold are growing. Bitcoin, on the other hand, is not in a rush to do the same. Its correlation with U.S. stock indices continues to decline. Is the cryptocurrency no longer a risky asset?
Bitcoin and Nasdaq correlation dynamics
The inability of BTC/USD to surge amid improving global risk appetite raises skepticism about Standard Chartered's forecast of price growth to $120,000 by the end of 2024. The argument is that miners are currently selling 100% of their tokens, but as their price increases, their share will drop to 20%. The decrease in supply will trigger a new surge in cryptocurrency value. Interestingly, the company was making a forecast of $100,000 in April.
In reality, Bitcoin's inability to capitalize on a favorable environment for risky assets is due to the fears of major investors regarding regulatory pressure. According to a Reuters survey, the share of hedge funds investing in cryptocurrencies has fallen from 37% in 2022 to 29% in 2023. A quarter of those who still invest in digital assets claim they are ready to withdraw their investments if regulation becomes even stricter.
Dynamics of bitcoin and the share of assets thrown out by miners on the market
Thus, Bitcoin continues to behave strangely. It rises when other risky assets fall and cannot benefit from the U.S. inflation slowdown. It is may be that aggressive regulation from the Securities and Exchange Commission (SEC) and the loss of interest in cryptocurrencies from major investors are impacting the dynamics of BTC/USD.
A new impetus for a Bitcoin rally could be provided by the SEC's approval of an ETF with a cryptocurrency-based spot asset. However, it is unknown when exactly this event will occur.
Technically, a return of BTC/USD to the range of short-term consolidation is a troubling sign for the bulls. This could activate the "Bull Trap" pattern. In this case, a decline in quotes below 30,700 and 30,150 should be considered a basis for selling.