Bitcoin price prediction – yields weigh on risk

Bitcoin dropped 8.4% yesterday as other risk markets capitulated. As an alternative instrument, cryptocurrencies should have a low correlation to stocks. However, this is not the case. It currently has a 78% correlation with the Nasdaq and an 80% correlation with the S&P 500. Thus, as the market turned risk-off yesterday, bitcoin was one of the casualties.

Given that bitcoin is priced in dollars, the tightening cycle of the Fed has put the cryptocurrency under pressure. The central bank has already delivery 75bps this year, with 50 bps of that coming on Wednesday. With inflation so rampant, future increases and balance sheet reduction will continue to apply pressure on bitcoin as higher yields make risk less attractive.

In this environment, consider the weekly bitcoin chart:

Bitcoin has declined by over 45% since its November high, putting it firmly in a bear market. However, price action for 2022 has been largely sideways. Technically, the cryptocurrency has charted a rising wedge (converging turquoise lines). Unfortunately, this pattern is a continuation pattern, and the price has broken down. To project a possible target, we can apply a measured move (turquoise verticals) to the breakout. This calculation gives us a price target of $25,000 for bitcoin - a further 30% decline.

However, a word of warning about forecasts: the variables in the financial market are continually in flux, meaning that expectations often change. Sometimes measured moves are hit, and sometimes they aren't. In this regard, keep an eye on the stochastic. We note that it has rolled over. If it hits 20 and holds (blue arrow), the crypto will be under momentum pressure to the downside. This bearishness will assist in reaching our projected target.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}