Bitcoin will recover over $32,000 in rebellion against the US dollar (NYSEARCA:BTC)

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Kanawat TH

Investment thesis

The US dollar is facing the challenges of dedollarization, debt crisis, potential economic recession and the rise of cryptocurrencies like Bitcoin (BTC-USD). In this context, the popularity of Bitcoins has increased. After ending the first quarter on a high note, it is entering a consolidation phase and will have the chance to climb back above $32,000.

Technical Analysis: Entering Consolidation, Next Major Resistance at $32,000

Driven by multiple factors, including monetary policy tightening and the banking crisis, the crypto market performed well in the first quarter of 2023, with total market capitalization increasing by 49% to $1.19 trillion. BTC rose 72% and closed at $28,440, while Ethereum (ETH-USD) rose 53% and closed at $1,827.

BTC rebounded after testing support at $15,000 in the first quarter. And in a new quarter, BTC is also entering a new journey in terms of weekly and monthly lines.

We applied the Donchian Channel (DC) indicator to gauge market volatility. From the weekly chart, we can see that BTC’s weekly line is still crossing below the $32,000 middle band and has been fluctuating slightly for more than two weeks after the strong rebound. It looks like BTC is still in a post-bounce consolidation phase on a weekly level. Meanwhile, the Average True Range (ATR) indicator has broken out of a long-term downtrend but is still at a cycle low, indicating that the market is still consolidating. Therefore, combining the two indicators, we believe that if the weekly line breaks significantly above the middle band, while the ATR indicator reverses and also breaks, it means that BTC will enter a strong upward phase, and it is advisable to enter the market at an opportune time.

Bing Ventures

BTC’s monthly line just saw three consecutive bullish candles, but it has yet to recoup the loss from last June when BTC started at $35,000. Combined with the middle line of the DC indicator in the weekly chart, we think $32,000 could be the next major resistance level. Applying the DC indicator, we can see that BTC’s monthly line is still below the middle band but is elevated above the lower band. Meanwhile, the ATR indicator continues to be in a long-term downtrend. This means that an immediate setback may not be in sight. Indicators such as increased stablecoin outflows and capital outflows from exchanges also confirm that the rebound is not sustainable.

Bing Ventures

Macro environment: the Fed tightening cycle is coming to an end, the multipolar reserve system is the trend

US nonfarm payrolls data for April released on May 5 was better than expected and showed the labor market was resilient. Meanwhile, the Consumer Price Index (CPI) report released on April 12 showed that inflation has slowed again. Although market concerns about the vulnerability of the US dollar index have increased, given that economic activity is at a reasonable level and inflationary pressures have subsided, we believe that the monetary tightening cycle of the Fed could be coming to an end.

Bureau of Labor Statistics

Previously, the Fed’s aggressive tightening policy led to huge capital inflows, resulting in a global US dollar crisis. While the US dollar crisis intensified, it did not lead to liquidity risks. And in the first quarter of 2023, global capital flows into dollar-denominated assets slowed. Therefore, we believe that the US Dollar Index could drop to the lowest level of the year in the coming weeks and remain sideways thereafter.

More importantly, the Russian-Ukrainian war made it clear to people in the US dollar system that US dollar reserves can be frozen by the United States. Gradual decoupling from the US dollar and multi-polarization will be the trend in the global financial market.

One of the potential results of this trend is that Bitcoin consolidates its position in the global financial landscape. And the performance of US equities and US Treasuries confirmed favorable macroeconomic conditions for this trend.

The performance of US equities in the first quarter was in line with expectations with fundamentals and technical indicators in bullish mode. First, February’s lower-than-expected personal consumption expenditure (PCE) rise of 5.1% year-over-year indicated moderate inflationary pressure, which bodes well for the stock market. Second, the US economy remained strong and corporate earnings continued to grow, supporting the rebound in US equities. Third, the employment rate looked good. And politically, the Federal Reserve’s change in attitude has also helped reduce downward pressure on the market.

Bloomberg

In the first quarter, the S&P 500, Dow Jones and Nasdaq all performed well, with the Nasdaq leading the rise due to the outperformance of technology stocks. Both Meta and Tesla shares rose more than 60%. On the contrary, bank stocks underperformed. Both the KBW Nasdaq Bank Index and the KBW Nasdaq Regional Banking Index suffered declines.

It must be recognized that the overall rise of the S&P 500 has covered the gloom of the entire market and that the major technology stocks have become havens for investors. We believe the U.S. economy is at a crossroads to choose between continued stock market growth and an economic recession and one of the biggest risks facing the market in the months ahead will be sluggish American economy.

S&P Dow Jones Indices

The ongoing Q1 earnings season and the release of key economic data is expected to have a big influence on market performance, especially cooperation earnings data and economic growth. The Fed’s more dovish turn will be conducive to a market recovery.

The performance of US equities in the second quarter is unpredictable due to the persistence of some uncertainties from last year, in particular the impact of rate hikes on the US economy. Although the S&P 500 has seen sideways movements lately, daily volatility is increasing, making it difficult to gauge the true health of the market. As S&P 500 companies report back-to-back Q1 results, we believe EPS forecasts will be reduced. Furthermore, we believe that the trend towards lower profit margins could continue until the end of the year before restoring growth.

The 10-year US Treasury yield often remains in a long-term downtrend, but whenever it reaches the upper edge of a downtrend channel, a global financial crisis occurs. This time, the speed and degree of his upward breakthrough was unprecedented in 40 years. Right now, the US Treasury yield curve is rapidly turning positive, which could be a harbinger of a US economic recession. The United Kingdom and the euro zone were the main buyers of US Treasuries, while Japan and Korea withdrew money from the market against their will and China continued to reduce its holdings. We believe that in the second quarter, international capital inflows into the United States will continue to slow and that foreign purchases could even register sharp declines.

Research and analysis of the alpha value

Influenced by the recent banking crisis, investor expectations for the 10-year US Treasury yield for the next three months are likely to decline, but prevailing views will remain for it to fluctuate between 3.4% and 3.6%.

Barclays

According to the Treasury International Capital report, at least 16 countries sold US Treasuries in January this year, including China, Belgium, Luxembourg, Ireland, Brazil, France, Saudi Arabia, Germany, Mexico, Israel, Kuwait, Colombia, Sweden and the Bahamas. , Vietnam and Peru. This trend reflects the growing recognition of the harmful effects of the debt-based economic model of the United States and apparently indicates that the monetary authorities of various countries are increasingly aware of the unreliability of the American debt as an asset of base supporting the US dollar.

Conclusion: BTC is on its way back above $32,000

We believe that as fiat currencies in some countries crumble due to the debt crisis, BTC will demonstrate its power to challenge the existing debt-based financial system. As the size of debt continues to grow, BTC will occupy an increasingly larger share as a source of capital in the debt recycling pool. In the second half of 2023, we expect BTC to rise above $32,000 thanks to catalysts such as slowing inflation, easing energy issues, a ceasefire in the Russian-Ukrainian war, and the reversal in the supply trend of M2.

Bloomberg, TheMarketMemo

The above factors will collectively lead to the start of a new bullish cycle. Consumers will gradually see Bitcoin as a store of value and a hedge against M2 inflation instead of a direct hedge against CPI inflation. Especially in the middle regions of emerging markets that face the frictions of multi-polarization, BTC will become one of the perfect natural alternatives to US dollar dominance. Meanwhile, if the US economy falls into a recession in any of our expectations, the Fed will likely halt rate hikes and there will continue to be an oversupply of money and deficits in government budgets.

As the competitors of the US dollar system have less power and discretion than the controller of the US dollar system, the possibility of their fiat currencies being weaponized by a few authoritarian politicians is basically eliminated. In this context, the narrative of bitcoins as a totally stateless currency makes it a more reasonable choice. One can imagine that the large-scale adoption of Bitcoin could significantly reduce the possibility of conflicts between political interest groups.

In summary, we are at a critical juncture in the economic cycle, and while the Fed is focusing its full attention on managing economic growth and inflation, it will face even greater challenges when unpredictable crises occur. in the economy. In this situation, if there is no particularly negative news for cryptocurrencies, BTC may move back above $32,000.

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