Bitcoin has failed to strengthen above the $40K again after yesterday’s brief upside that pushed it to highs of $40,280. Today’s market action has seen BTC retreat to lows of $38,750, although the benchmark crypto currently trades just above $39,000 according to data from crypto price tracker CoinGecko.
The negative turnaround is also seen in the rest of the market, with total market capitalization down 1.8%. Ethereum, the second largest cryptocurrency by market capitalization, is down 1.5% in the past 24 hours.
Recession fears could aid risk assets
Current struggles for Bitcoin also align with a slowdown in stocks on Friday as shares of tech giants Amazon and Apple fell after their respective earnings reports a day earlier. The S&P 500 was 1% down in early morning trading, while the Dow Jones Industrial Average had opened 0.4% lower and Nasdaq Composite was losing by 0.7%.
Rising volatility is likely to increase further losses amid concerns over the US Federal Reserve’s tightening monetary policies. The Fed, which meets next week, is expected to raise interest rates by 50 basis points; a factor that market watchers believe could affect the economic recovery.
Marcus Sotiriou, an analyst at digital asset broker GlobalBlock suggests the possibility that a higher rate hike and overtightening from the Fed could steepen economic decline might present a bullish signal for Bitcoin.
In a note shared via email on Friday, Sotiriou said:
“US GDP contracted 1.4% in the first quarter of 2022 as recession fears intensify. This is bullish for risky assets like Bitcoin and stocks in my view as the Federal Reserve may become less hawkish to avoid a recession.”
The 1.4% year-over-year contraction in the first quarter of 2022 is the first time GDP has shrunk this much since Q2, 2020.
Bitcoin’s Immediate Outlook
It should be noted for investors, however, that the correlation between Bitcoin and stocks has increased over the past few months.
As such, declines across the equity markets arising from jitters around geopolitical turmoil and fresh COVID outbreaks could pull BTC lower.
On the other hand, a spike in upward momentum in the stock market could also help Bitcoin break above immediate resistance levels.
