Despite rallying nearly 60% in 2023 to around $27,000, Bitcoin’s price has failed to move beyond $30,000 decisively. A price correction towards $25,000 over the past week has strengthened Bitcoin’s correlation with several traditional financial metrics. The main question now is whether this raises the risk of Bitcoin continuing its downtrend in Q2.
The U.S. dollar index (DXY), which measures the greenback’s strength against a basket of top foreign currencies, rose 1.4% to 102.70 in the week ending May 14. Interestingly, the dollar’s rise left behind a potential double bottom pattern, which could lead to a bullish reversal setup, suggesting DXY could rise toward 105.85 in the next few months. DXY’s weekly relative strength index (RSI) further hints at bullish continuation, typically a bad omen for Bitcoin’s price.
Gold’s Rally and M2 Supply
Gold’s positive correlation with Bitcoin has grown stronger, with its weekly coefficient reading at 0.82 as of May 14. However, gold’s rally has brought its price to an infamous horizontal resistance level near $2,075. Testing the level as resistance could lead to a sharp bearish reversal phase. Gold’s weekly RSI, treading around its overbought reading of 70, indicates a similar downside scenario. As a result of the precious metal’s positive correlation with Bitcoin, the latter may see a similar correction in Q2.
M2 measures cash in circulation plus dollars in bank and money-market accounts. The M2 figure surged by more than 40% during the Covid-19 pandemic due to the Fed’s quantitative easing, hitting a peak of $21.84 trillion in January 2022. A 2%-plus drop in the M2 supply is bad news for the stock market since it preceded three depressions and one panic. The significant move lower in M2 could foreshadow new lows for Bitcoin, which often moves in tandem with U.S. stock indexes.
Technical Analysis and Potential Bitcoin Price Decline
Bitcoin appears to be heading towards the $15,000-$20,000 price range, depending on its potential breakdown point from what appears to be a rising wedge pattern. For technical analysts, a rising wedge is a bearish reversal pattern that appears when the price rises higher inside a range defined by two contracting, ascending trendlines. It resolves after price breaks below the lower trendline, falling by as much as the maximum wedge height. If this BTC price pattern is confirmed, particularly given the above-mentioned macro indicators, Bitcoin price stands to decline to as low as $15,000 in 2023, down about 45% from current price levels.