The cryptocurrency market has remained stable amid the plunge in US stocks and the AI sector. Bitcoin has regained its position above $64,000, while Ethereum has rebounded to the $3,000 range, in line with our expectations. This confirms that Bitcoin still retains its hedging characteristics during regional conflicts. Additionally, Bitcoin has recently undergone a halving event. Although many analysts have suggested that halving may cause a price decline, we maintain our original view that Bitcoin is expected to benefit from the rise in hedging sentiment and rebound.
Last week, there were two major events in the global risk asset market. The first event was that inflationary pressure in the United States remains present but not as optimistic as previously expected. This led the Federal Reserve (Fed) to revise its interest rate expectations. Over three Fed officials have also stated that interest rate cuts may be postponed until next year. However, the investment market is still slowly adjusting its interest rate expectations. According to Fed Watch interest rate futures, the market now expects a rate cut in the third quarter of this year.
However, the predictions made by Fed officials are even more pessimistic. They generally believe that the earliest rate cut may occur in December this year or even have to wait until next year. The market is also skeptical about this. Bond yields have only seen a small increase, which has caused some negative changes in the cryptocurrency market. As a result, investors have withdrawn some funds after seeing the change in official attitudes, leading to a drop in Bitcoin to $61,000. However, the selling pressure is not very strong, and the decline is mainly due to excessive leverage.
Considering that cryptocurrencies have previously experienced a surge due to continuous buying in Bitcoin ETFs, many investors have chosen to use contracts with leverage of tens of times to maximize returns, especially for small and medium-sized cryptocurrencies such as Dogecoin, which provide leverage of over 20 times. Although traders have become more cautious, five times leverage is still the strategy adopted by most retail investors. However, when Dogecoin falls, it can easily drop by more than 20%, and after being magnified by five times, it can directly lead to forced liquidation.
Therefore, this wave of decline can be divided into two parts. The first part is the decline in Dogecoin due to the impact of the overall market. Due to the high volatility of Dogecoin, it often experiences declines of more than 20%, resulting in massive liquidation of contracts and triggering the first round of retracement. The second part is when Bitcoin briefly fell below $60,000. This is when mainstream coins with lower leverage experienced more obvious contract liquidation. The conflict between Israel and Iran actually stabilized the price of Bitcoin.
Sources: MICA RESEARCH
A. April 16: Surprisingly Strong US March Retail Data Dampens Rate Cut Expectations
The latest retail sales data for March in the United States was released, showing a monthly growth rate of 0.7%, exceeding the expected 0.4%. Core sales increased by 1.1% month-on-month, far exceeding the expected 0.5%. This indicates that the consumption power of Americans is still very strong, making it more difficult for the Fed to cut interest rates in the short term.
This means that even though the United States has relatively high interest rates, the consumption power of Americans will continue to delay the point where inflation slows down. This data immediately impacted US stock dividend rates and bond prices. The 10-year bond yield has reached 4.6%, and US stocks have also declined.
Due to the increased expectation of delayed rate cuts, both Bitcoin and gold prices have experienced significant retracements. Although we previously mentioned that Bitcoin and gold are influenced by hedging sentiment and are not affected by Fed interest rate policies in the short term, the data released yesterday differed greatly from market expectations and still impacted asset prices. Bitcoin has temporarily dropped from $66,000 to $63,000, a decrease of about 5%.
B. April 17: Bitcoin Briefly Drops Below $60,000, Triggering $216 Million in Forced Liquidations
With the significant adjustment of market expectations for the Federal Reserve’s interest rate policy, the prices of risk assets have also been affected by market selling pressure. The price of Bitcoin briefly fell below $60,000 yesterday and then gradually recovered to $61,000. According to Coinglass data, this led to over $216 million in forced liquidations within 24 hours. However, there are still high leveraged positions in the market.
Many people attribute the decline to the conflict between Israel and Iran. However, we believe that it is already good news that there is no further conflict between the two countries. Additionally, Bitcoin’s hedging properties have not disappeared, and the adjustment of interest rate policies should be a more significant factor.
On the other hand, most of the contracts liquidated in the previous wave were for small and medium-sized cryptocurrencies, which experienced more severe declines of over 20%. Contracts with leverage of five times or more would be closed. However, Bitcoin’s volatility is not that high, only about 10%. Therefore, there are still high open positions in the market. Investors love to use leverage to maximize their profits. The recent high volatility of Bitcoin is due to the consolidation of leveraged contracts.
C. April 19: Fed Officials: Interest Rate Cuts Could Be Delayed Until 2025 Unless Inflation Eases
Three Fed officials made statements on inflation early this morning, and their remarks were almost hawkish. For example, New York Federal Reserve Bank President John Williams stated that inflation is still higher than the target and may consider raising interest rates if necessary. Atlanta Federal Reserve Bank President Raphael Bostic also maintains an open attitude towards interest rate hikes, believing that if inflation data worsens, the Federal Reserve will need to consider countermeasures.
Finally, Minneapolis Federal Reserve Bank President Neel Kashkari mentioned in an interview that unless the Fed is confident that inflation will ease, interest rate cuts will not occur this year and will have to wait until 2025. The remarks of these three officials further raised US bond yields and also impacted the upward trend of US stocks. Fortunately, they did not suppress the rebound in the cryptocurrency market. The closing of short positions helped Bitcoin regain the $63,000 level, with an increase of about 3%.
The cryptocurrency industry is counting down to the Bitcoin halving event. There are now less than 200 blocks left until Bitcoin completes its halving. It was previously expected that fund companies would aggressively promote and boost cryptocurrency prices, but so far, there has been no sign of fund companies starting to hype this topic. More resources or investor attention may be diverted to the shift in Fed interest rate policies.
Hedging sentiment offsets pressure from interest rate inversion, providing support for Bitcoin prices.
Next, let’s talk about the escalating conflict between Israel and Iran in the Middle East region. When Iran retaliated against Israel, Bitcoin and the US stock market both experienced significant declines. At that time, many people thought that Bitcoin’s hedging properties had disappeared and even began to question whether Bitcoin is a hedge asset because the two events happened on the same day. Many Dogecoin traders suffered heavy losses that day and believed that Bitcoin is no longer a hedge asset. However, subsequent events completely contradicted the analysts’ views.
Subsequently, when news broke that Israel planned to counter-attack Iran, the price of Bitcoin actually rose from $61,000 to $64,000, reaching a high of $65,000 at one point. In comparison, US technology stocks performed poorly, especially AI concept stocks, which plummeted due to Super Micro’s (SMCI) failure to announce earnings in advance. Bitcoin’s price performance can be considered quite strong. Compared to technology stocks, Bitcoin currently resembles a digital gold asset. When gold rises, Bitcoin is likely to rise as well. The current market sentiment is intense in terms of hedging.
Therefore, the previous sharp decline in Bitcoin was not due to the conflict between Israel and the Middle East but rather due to the shift in the Federal Reserve’s interest rate policy and the high leverage of the cryptocurrency market contracts. Traders must wait for the consolidation of leveraged contracts before it is possible to determine the next direction. In essence, Bitcoin is still a hedge asset that provides value storage tools during regional conflicts, but it does not mitigate the risk of stock market declines. It belongs to the “regional war hedging tool.”
At the same time, more and more analysts are pointing out that Bitcoin halving may lead to a major price drop. The reason is that miners’ income will decrease, causing some poorly disciplined mining farms to sell their inventory to support previous investments or operating expenses. However, our view is somewhat different. Fund companies are expected to celebrate Bitcoin halving. With the decrease in supply, the demand for hedging is expected to increase, increasing the probability of continued price rebound.
Currently, Bitcoin’s trend is following that of gold, and its hedging nature is quite apparent. The uncertainty of the Middle East conflict is increasing in the short term. We believe that this may bring some buying support for Bitcoin, and there is a higher probability of price consolidation. After the expectation of rate cuts eases, Bitcoin is expected to retest the $70,000 mark.
Last week’s review
[MICA RESEARCH] Central Banks and Investors Embrace Gold, Bitcoin Also Gains Attention
Disclaimer: This article represents the author’s personal views and opinions and does not represent the views and positions of BlockTempo. All content and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and trades, and the author and BlockTempo will not be held responsible for any direct or indirect losses incurred by investors.
Disclaimer: The content of this article is only for providing market information. All content and opinions are for reference only and do not constitute investment advice. They do not represent the views and positions of BlockTempo. Investors should make their own decisions and trades, and the author and BlockTempo will not be held responsible for any direct or indirect losses incurred by investors.
Tags:
MICA
Israel
Iran
Analysis
Cryptocurrency
Geopolitical Conflict
Market
War
Investment
Bitcoin
Market Trend
Hedging
