(Kitco News) – Bitcoin (BTC) bulls are battling to hold support at $62,000 in early trading on Wednesday after bears successfully breached the $63,000 level late on Tuesday as they push to reclaim lost ground in the battle for control of the price action.
Weakness across financial markets returned after Federal Reserve Bank of Minneapolis President Neel Kashkari said it’s likely that the central bank will keep interest rates where they are until officials are certain inflation is on track to their target.
“The most likely scenario is we sit here for an extended period of time,” he said while speaking at the Milken Institute Global Conference on Tuesday. “If inflation starts to tick back down or we [see] some marked weakening in the labor market then that might cause us to cut back on interest rates.”
Kashkari also touched on the possibility of an interest rate hike, which gave many investors a reason to pause and reevaluate their exposure to the markets.
“Or if we get convinced eventually that inflation is embedded or entrenched now at 3% and that we need to go higher, we would do that if we needed to,” Kashkari said.
The major indices opened lower on Tuesday following the hawkish statement, but have climbed back into neutral or positive territory at the time of writing.
Data provided by TradingView shows that Bitcoin hit a low of $61,755 shortly after the market opened in the U.S., but has since climbed back above $62,600.
BTC/USD Chart by TradingView
At the time of writing, BTC trades at $62,210, a decrease of 2.6% on the 24-hour chart.
“When the price of Bitcoin dropped 12 percent in a couple of days last week, even crypto’s most bullish investors feared the worst. Which makes its strong rebound since hitting a two-month low on May 1 all the more remarkable,” said Neil Roarty, analyst at investment platform Stocklytics.
“Bitcoin’s price is now comfortably back over $60,000, helped in no small part by the US Federal Reserve’s confirmation that interest rate hikes are unlikely in the foreseeable future,” he added. “But there’s debate on where it goes from here.”
“The most optimistic options traders are targeting $100,000 by the end of this year. To achieve that price point, Bitcoin will have to show even greater resilience in the face of increasing regulatory scrutiny and wider political and economic uncertainty,” Roarty said. “Given the gains of the last few months, plenty will be backing Bitcoin to do just that.”
Macro pressures weigh on the crypto market
“The recent selling pressure seems more macroeconomic than Bitcoin focussed,” James Davies, co-founder and CPO at Crypto Valley Exchange, told Kitco Crypto in a note. “Tech stocks are off and AI corporate performance has failed to match expectations.”
“In the US, the DTCC haircut has reduced how attractive ETFs were expected to be over the short term, reducing speculative views of additional incoming cash in the short term,” he said. “With the Fed all but ruling out a rate rise in response to overly persistent inflation, the US position is bullish across the economy in the short term.”
“Transitions further afield, with Indian elections and Indonesian government changes bring uncertainty in markets with large Bitcoin holdings, it’s certainly wait-and-see time for those with significant holdings to get a direction from the market as a whole,” Davies noted.
Referencing open interest data provided by Deribit, Davies said options traders “appear to have significant bets that Bitcoin will rally to $80,000 by the end of May, which would be a new all-time high.”
Given the recent sub-$60,000 pullback, “Some of these may be historical bets, but there hasn’t been a lot of covering their positions, so some faith remains,” he said. “Even more compellingly, though, is the increasing gathering of open interest around the $100,000 level for the end of July. Should Runes have the impact many believe they will, perhaps that psychological level might actually be within reach much sooner than many expected. Overall, options paint a similarly mixed picture with short-term volatility as the main expectation.”
As for what could help reignite bull market momentum, Davies noted that “Bitcoin has a strong base from which to grow that includes the recent halving, which often tends to lead prices to appreciate during the following year and see Bitcoin hit new highs.”
Other bullish factors include “the introduction of Runes bringing more functionality to Bitcoin including DeFi functionality, and the recent launch of spot Bitcoin ETFs in Hong Kong, maybe with greater value to international investors than those with 100% collateral haircuts in the U.S.”
“After the recent bull run, a lot of capital has gone into good projects which will begin to launch over the summer, maybe creating a second DeFi summer,” he said. “Even if this is more in the Fall and Winter of 2024, projects that improve capital efficiency, replacing outdated metrics like total value locked (TVL), were the talk of DAS London and Token 2049 in Dubai. There is a lot of positive to see coming into Bitcoin and the crypto ecosystem created in the last bull run.”
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