Despite Bitcoin's Fall, Stocks Must Cooperate For Bitcoin To Reach Its Highest Level In Months

Despite a wider, stock market-led selloff over the past few days, Bitcoin and other cryptocurrencies turned lower on Thursday, paring gains after rebounding from a wider, stock market-led selloff over the past few days. Cryptos, however, still have a good chance of continuing their rally and potentially hitting the highest level in months if stocks cooperate with cryptos.

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Bitcoin's price has fallen by close to 2% over the past 24 hours, to $23,750, after topping $24,500 earlier in the day. During the past few weeks, the largest digital asset had been heading closer to $25,000, a level it has been flirting with since mid-February, and which if it can manage to hold, would be the highest consistent price since last June. As a result of bitcoin's rally to start 2023 - an increase of about 50% from the start of 2022 - there have been speculations of a new bull market, however, bitcoin prices remain far below their peak near $69,000 in late-2021.

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“There was a lot of pressure on Bitcoin on Tuesday and Wednesday due to falling stock indices. The decline paused last night, which helped the crypto market recover some of its losses,” according to Alex Kuptsikevich, an analyst at brokerage FxPro, noting that Bitcoin finished under $24,000 for the first time in eight days on Wednesday.

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As Bitcoin has outperformed the stock market so far this year, it has bucked its usual correlation with stocks. Despite the high inflation and rising interest rates that are expected to occur in 2022, bitcoin recently has fallen back in line with stocks. Investors have been concerned that the Federal Reserve will continue to raise interest rates aggressively this year, as it continues to battle inflation, which is putting pressure on Dow Jones Industrial Average and S&P 500 stocks over recent days.

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Rate increases boost the returns on risk-free assets, like U.S. government bonds, which in turn dampens the demand for riskier bets, like Bitcoin and stocks, as a result of higher rates. In 2023, the anticipation that the worst is over has been a major factor that has boosted cryptocurrency prices because of the rising interest rates that drove the selloff last year.

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In the future, Bitcoin and other digital assets will continue to be impacted by macro pressures such as these. There is a high probability that the next major catalyst will occur on Friday when the Fed releases its preferred indicator of inflation—the personal consumption expenditures (PCE) index for January. There is a high probability that Bitcoin will continue to rise if PCE - and the reaction of stocks - cooperate.

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Craig Erlam, an analyst at broker Oanda, commented that there is clearly a resurgence of belief in crypto markets and some confidence that the darkest days of crypto are behind it. “If the newsflow can remain on the sidelines, then that could prove to be the case, and a break above $24,500-$25,500 could further fuel that belief if the newsflow can remain on the sidelines."

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Bitcoin's technical picture appears to be improving, with key levels just north of $25,000 in sight that would reinforce the momentum behind the crypto rally.

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“We continue to view a confirmed breakout (consecutive weekly closes above $25,200) resistance as a bullish long-term development,” said Katie Stockton, managing partner at Fairlead Strategies.

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Besides Bitcoin, the second-largest digital asset, EtherETHUSD +1.39%, which was down less than 1% below $1,650, was down less than 1% as well. Also down were smaller cryptos and altcoins, including Cardano and Polygon MATICUSD -0.71%. There was more mixed performance among Memecoins, with Dogecoin DOGEUSD -0.61% down 1% while Shiba InuSHIBUSD +1.48%  jumped 2%.