FX.co ★ Bitcoin gains momentum amid weakening U.S. banking system

Over the past week, Bitcoin has experienced minimal price changes, despite high levels of volatility. The Federal Reserve meeting and its results provoked active actions by investors, but the price was magnetically pulled back to the $28.5k–$29k range.

As a result, BTC ends the trading week near the $29k level, and despite the lack of clear signals, the asset is becoming increasingly in demand. The early stage of the bull market, combined with growing problems in the traditional economic sector, will soon lead to a steady increase in interest in Bitcoin.

Is the rate hike cycle over?

The global economy has lost massive amounts of liquidity due to the Fed's policy, but in the long run, BTC and gold have emerged as winners. Raising the rate to 5.25% has reduced inflation to 5%, but has exposed problems in the banking sector.

Most likely, the Fed has reached the peak rate in the current cycle. Fed Chairman Jerome Powell stated that the U.S. banking system is stable, but on the same day, we saw the opposite. PacWest Bancorp's quotes fell by half, while First Horizon Corp and Western Alliance Bancorp suspended trading due to potential liquidity issues.

At the same time, Moody's reported that the U.S. government will run out of funds to pay bank bills by June 8. This could lead to a technical default by the U.S. and trigger a cascade of bank failures. To avoid this situation, the U.S. needs to pass a law raising the debt ceiling.

BBG experts are confident that the Fed has completed the most aggressive key rate hike cycle in history and will only lower rates from now on. JPMorgan also noted that the regulator will begin lowering rates in September 2023. These news items unequivocally inspire optimism and faith in an imminent improvement in the situation, but doubts about traditional finance have already arisen among investors.

Bitcoin and gold: the favorites

High-risk assets will temporarily occupy the niche of traditional financial instruments. Although inflation is declining, the banking sector is currently considered unstable. At the same time, Treasury bonds appear to be a dangerous investment amid a possible technical default by the U.S.

Due to this combination of factors, gold is experiencing the largest inflow of investment since 1980. Gold maintains a high correlation with BTC—over 80—suggesting that both assets are perceived as protective, and according to JPMorgan's forecasts, this situation will last until at least September 2023.

In the coming weeks, a resumption of the upward movement in BTC/USD should be expected. Santiment reports that large investors increased their reserves by 64,000 BTC in April. At the same time, miner revenues are at their highest for the year. However, for a full-fledged upward movement in BTC/USD, a corrective movement needs to be completed.

Correction to $26k

Bitcoin needs to gather significant liquidity reserves concentrated below the $26.6k level. However, bulls are holding positions above $27k and are not letting the price drop lower, which may negatively affect the upward movement of BTC. The asset has tried to test the $29.9k level four times in the last five days, but did not succeed.

If the Bitcoin price embarks on a full-fledged upward surge without liquidity below $26k, it could lead to a rapid depletion of bullish potential. Given this, the most logical step for BTC would be a corrective move to $26k. This would allow gathering larger volumes of liquidity and enable smaller investors to buy more.

Conclusion

Bitcoin is approaching another stage of the upward movement, where the key target will be to consolidate above the $30k level. However, to achieve BTC's maximum targets, a corrective move to $26k must be completed. Otherwise, the sustainability of the long-term upward trend will be in question.