Bitcoin (BTC) experienced a 3.3% drop on May 14, testing the $61,000 support level before quickly rebounding. This decline marked the second failed attempt in a week to surpass $63,500. Despite this, Bitcoin bulls remain optimistic, as evidenced by BTC derivatives metrics.
While the current trend may seem bearish, some analysts believe that there is still a good chance for Bitcoin to reach prices above $70,000.
Cryptotoad, a trader and analyst, highlighted the resilience of the $60,500 support level. However, he emphasized the need for a higher high, specifically a daily close above $67,000, in order to break the current bearish pattern. While this analysis does not rule out the possibility of a price recovery, it suggests that prices below $57,000 are likely in May.
Investor disappointment on May 14 was partly due to the United States Producer Price Index (PPI) data for April, which showed a 0.5% month-over-month increase. The market interpreted this as confirmation that the U.S. Federal Reserve will maintain higher interest rates for a longer period of time, which is seen as detrimental to risk-on assets like cryptocurrencies and growth stocks.
Although some argue that inflation is inherently positive for Bitcoin due to its strict monetary policy, investors tend to seek cash and short-term bonds during times of fear and uncertainty. Yields on two-year U.S. Treasury notes dropped from 5.03% on May 1 to 4.84% on May 14, indicating that traders are willing to pay a higher price for these fixed-income instruments.
While higher-than-expected inflation data should have triggered negative sentiment for Bitcoin, this was not reflected in derivatives data. Bitcoin futures contracts showed resilience, as the annualized premium remained largely unaffected by the worsening macroeconomic conditions and Bitcoin’s struggle to sustain prices above $63,500. The current 8% premium indicates a neutral market with room for negative surprises.
Examining the Bitcoin options market, the BTC options skew metric suggests that market participants have priced call and put instruments similarly, indicating that the weakness in Bitcoin’s price did not impact how professional traders assess risks for downside swings.
Bitcoin bears have displayed strength, with the last daily close above $65,000 occurring three weeks ago on April 23. However, bulls have not been deterred by the lack of momentum, which seems to be driven by investors temporarily shifting to cash positions. If inflationary issues in the U.S. persist, market participants may be forced to seek alternatives, keeping Bitcoin’s path to $70,000 by 2024 within reach.
It’s important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and assessment of risks before making any investment or trading decisions.