BTC stock correlation 'not what we wanted' - 5 things to know about Bitcoin this week

Bitcoin whimpered to start the second week of April as bulls struggled to hold support above $40,000.

After an exhilarating low-volatility weekend, markets rallied at the latest weekly close, with BTC/USD falling in classic fashion in the final hours of Sunday.

For the average holder, there is currently a sense of being caught between two stools - macro forces promising major trend shifts but slow to deliver, and "substantial" buyer demand not improving Widely present in encrypted assets.

Meanwhile, those insiders show no sign of doubting the future, as evidenced by Bitcoin network fundamentals such as all-time highs.

These opposing factors combine to cause prices to appear to have no idea where to go next. Will anything change this week?

As a retest of $40,000 looms, Cointelegraph analyzes 5 potential Bitcoin price clues.

No "massive BTC withdrawals"?

Starting Monday with BTC/USD reclaiming $42,000, the pair briefly lost $42,000 by the evening's weekly close.

In the process, bitcoin reached a multi-week low of $41,771 on Bitstamp, matching levels seen on March 23.

BTC/USD 1-hour candle chart (Bitstamp) Source: TradingView

In doing so, Bitcoin gave up all the gains it had made from the period, falling back to the top of last month's trading range. However, this could be a retest of previous resistance as support, with many traders not fearing the worst and hoping for a reversal soon.

“Bullish retest of flipped weekly levels, Bitfinex whales filling bids, I’m buying on dips. If you want to wait for confirmation, you can wait for monthly close,” Twitter user Credible Crypto wrote in a comment .

Credible Crypto is commenting on whale buying on Bitfinex and new chart data showing that Bitcoin’s Aroon indicator has turned bullish in recent days.

Designed to identify an asset’s upward or downward trend, Aroon has provided just six such bearish-to-bullish “crossovers” since 2017 — the last time Bitcoin topped and retreated.

Trader and analyst Rekt Capital also had plenty of reasons to be bullish on Bitcoin, but ended the week at around $42,150, which ended up disappointing compared to his call for $43,100, Cointelegraph reported.

“A BTC weekly close like this and a retest of $43,100 as new support will do the trick,” he explained alongside Sunday’s chart.

“As such, BTC will be positioned higher in the $43,100-52,000 range, as previously circled in blue.”

Meanwhile, Cointelegraph contributor Michaël van de Poppe noted that Sunday night’s drop eliminated the potential for a futures gap on the Chicago Mercantile Exchange (CME) to offer a short-term price target when trading opens on Monday.

Stocks under pressure across the board

It was the worst day for stocks so far, with losses across Asia largely due to China's latest coronavirus lockdown.

The Shanghai Composite and Hong Kong's Hang Seng were both down more than 2% in early trade.

At the time of writing, European markets are not open yet, but geopolitical tensions centered on Russia show no signs of changing.

Incumbent French President Emmanuel Macron may have a lead in polls over his far-right rival Jean-Marie Le Pen, giving the euro a glimmer of hope.

Beyond the short term, however, analysts are focused on some worrying trends: rapidly rising inflation and bond market losses that central banks have so far appeared incapable of dealing with.

The European Central Bank (ECB) meets this week to focus on inflation control - ending asset purchases and raising interest rates.

Rising inflation has rattled bond markets as the biggest bond bubble in 800 years continues to deflate after the start of a Fed rate hike cycle ahead of next week's European Central Bank meeting. The value of global bonds has fallen by another $960 billion this week, bringing total losses from record highs to $6 trillion.

— Holger Zschaepitz (@Schuldensuehner) April 10, 2022

The situation underscores the difficulties stocks and risk assets are facing in the current environment. Commentators agree that the inflationary environment and associated central bank measures will reduce demand for Bitcoin and cryptocurrencies, and the true extent of economic reality has become clear.

Holger Zschaepitz tweeted last week that while the S&P 500 rose, the Fed’s asset purchase program meant the index had effectively been flat since the global financial crisis.

"From an objective standpoint: The S&P 500 may have hit an all-time high today, but if you tie that index to the Fed's balance sheet, it's trading at the same level as it was in 2008, so since 2008, stocks have has been trading sideways, essentially offsetting the expansion of the balance sheet," he wrote.

Fall together?

Arthur Hayes, the former CEO of derivatives giant BitMEX, believes that the reasons to be bullish on Bitcoin as a store of value still exist in the face of fiat currency failure.

The problem is, such a scenario has not materialized -- not yet.

In his latest blog post on Monday, Hayes repeatedly warned that for the average investor holding a lot of risky assets, the pain will precede the gains.

The future may see countries and individuals move away from dollar hegemony to different assets, but in the meantime, macro forces will continue to take their toll on cryptocurrencies.

The growing correlation between cryptocurrencies and stocks can only mean one thing if the stock market takes a dive in response to central bank action (nominally aimed at fighting inflation).

"Short-term (10-day) correlations are high, medium-term (30-day and 90-day) correlations move up and to the right. That's not what we want," Hayes said of cryptocurrencies and the Nasdaq 100 (NDX ). ) when the correlation is indicated.

“I think the correlation needs to drop significantly across all time frames for the NDX to crash (30% to 50% drop) to support selling fiat and buying crypto.”

Will the stock market really lose half its value because of the Fed and its actions? Anyone can guess that, Hayes said.

"A 30% drop? ... a 50% drop? ... Your guess is as good as mine," he added.

"But let's be clear - the Fed isn't looking to expand its balance sheet again anytime soon, which means stocks won't go any higher."

Federal Reserve's balance sheet as of April 4 (screenshot) Source: Federal Reserve

Market sentiment deviates from traditional markets

With the macro outlook dimming, it's no surprise that market sentiment has taken a hit.

After feeling “greed” across the crypto market at the end of March, the Crypto Fear and Greed Index is now firmly back in “fear” territory.

The measure, which is similar to the Fear and Greed Index in traditional markets, has seen its normalized score drop in half in less than two weeks as traders back off.

On Monday, the Crypto Fear and Greed Index read 32/100, compared with 46/100 for its traditional market counterparts, which is defined as "neutral."

Regardless, Van de Poppe cautions readers against trading on emotional cues.

"Everyone was very bullish on the market, but now the market is correcting and fear has taken over," he concluded.

"Sentiment is not a good indicator of how to trade."

Crypto Fear and Greed Index (screenshot) Source: Alternative.me

Fundamentals remain confident

This week, a glimmer of hope came from a familiar source - despite the price drop, Bitcoin's network difficulty will only drop 0.4% in the coming days.

Arguably the most important aspect of the Bitcoin network self-maintenance paradigm is that the difficulty will adjust downward from its all-time high to reflect changes in mining composition.

The small size of this correction suggests that despite last week’s 10% drop in BTC/USD, miners are still profitable at current levels and not in trouble.

Bitcoin 7-day average difficulty chart Source: Blockchain

Further data supports this notion, with monitoring resource MiningPoolStats estimating hashrates also hovering at historically high levels.

As Cointelegraph reported, the mining industry continues to attract significant investment, including Blockstream, which last week announced a solar farm that, once operational, will generate 30 PH/s of computing power per second.

Bitcoin computing power estimate (screenshot) Source: MiningPoolStats

Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.