Bitcoin (BTC<\/a>) has rallied nearly 60% to around $27,000 in 2023 amid anticipations that the Federal Reserve would pause its quantitative tightening<\/a>\u00a0amid the\u00a0U.S. banking crisis<\/a>. Still, BTC price has failed to move beyond $30,000<\/a> decisively.<\/p>\n Buying exhaustion at this key psychological level led to a price correction toward $25,000 over the past week. Interestingly, the decline has strengthened Bitcoin’s correlation with several traditional financial metrics.<\/p>\n But does this raise the risk of Bitcoin continuing its downtrend in Q2? Let’s have a closer look.<\/p>\n The U.S. Dollar Index\u00a0(DXY), which measures the greenback\u2019s strength against a basket of top foreign currencies, rose 1.4% to 102.70 in the week ending May 14. The rise marked the dollar\u2019s best week since September 2022. <\/p>\n Interestingly, the dollar\u2019s rise left behind a potential double-bottom\u00a0pattern<\/a>, confirmed by two low points near a similar horizontal price level of around 100.75. A double-bottom pattern is a bullish reversal setup, suggesting DXY could rise toward 105.85 in the next few months.<\/p>\n DXY’s weekly relative strength index<\/a> (RSI), which has undergone a rebound after reaching 35 \u2014 just five points above the oversold threshold \u2014\u00a0 further hints at bullish continuation, which is typically a bad omen for Bitcoin’s price.\u00a0<\/p>\n The main reason is the strengthening negative weekly correlation between Bitcoin and DXY<\/a>, with the coefficient around -50 as of May 14. <\/p>\n Earlier in the week, the latest U.S. Consumer Price Index (CPI) report showed<\/a> headline inflation dropped to 4.9% in April versus the previous month\u2019s 5%. However, core inflation was up 5.5%, suggesting underlying price pressures remain sticky, which for now has cooled down Fed rate cut expectations<\/a>.<\/p>\n John Authers from Bloomberg writes<\/a>:<\/p>\n \u201cThe odds of a \u2018pause\u2019 in interest rate hikes next month have now risen to virtual certainty in futures and swaps markets, having been seen as an 84% chance before the numbers came out.\u201d<\/p><\/blockquote>\n A Fed pause should result in a stabilizing bond market. History indicates that stable interest rates have been good for U.S. Treasurys but bad for stocks, with\u00a0Erin Browne and Emmanuel Sharef of Pimco saying<\/a>:<\/p>\n \u201cIf the Fed pauses at its peak rate for at least six months and the U.S. slides into recession, then history suggests 12-month returns following the final rate hike could be flat for 10-year U.S. Treasurys, while the S&P 500 could sell off sharply.\u201d<\/p><\/blockquote>\n Thus, a souring risk appetite would be a boon for the dollar, while increasing the risk of Bitcoin failing to reclaim $30,000 in the short term.<\/p>\n The price of gold<\/a> has risen nearly 15% to over $2,000 an ounce amid the banking crisis. The positive correlation with Bitcoin has also grown stronger with its weekly coefficient reading at 0.82 as of May 14.<\/p>\n But gold\u2019s rally has brought its price to an infamous horizontal resistance level near $2,075. In March 2022, this level was instrumental in triggering a sharp bearish reversal phase that led gold to drop by up to 22%.<\/p>\n Similarly, testing the level as resistance in August 2020 preceded an 18% price decline. Should the scenario repeat in 2023, gold\u2019s price could fall toward its 50-week exponential moving average (50-week EMA; the red wave) near $1,850.<\/p>\n Gold\u2019s weekly RSI, treading around its overbought reading of 70, indicates a similar downside scenario. As a result of the precious metal\u2019s positive correlation with Bitcoin, the latter may see a similar correction in Q2.<\/p>\n 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.<\/p>\n It has since declined to $20.81 trillion, down over 4% from peak, in May 2023. <\/p>\n A 2%-plus drop in the M2 supply \u2014 something which has happened four times to date<\/a> \u2014 is bad news for the stock market since it preceded three depressions and one panic. <\/p>\n In other words, the significant move lower in M2 could foreshadow new lows for Bitcoin, which often moves in tandem with U.S. stock indexes.<\/p>\n Currently, the weekly correlation coefficient between Bitcoin and the Nasdaq-100 index<\/a> is 0.92.<\/p>\n Bitcoin appears to be heading toward the $15,000-$20,000 price range, depending on its potential breakdown point from what appears to be a rising wedge<\/a> pattern.<\/p>\n For technical analysts, a rising wedge<\/a> 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.<\/p>\n Related:\u00a0BTC price bounces at $25.8K lows amid warning over low whale interest<\/a><\/em><\/strong><\/p>\n If this BTC price pattern is confirmed, particularly\u00a0given the above-mentioned macro indicators, Bitcoin price stands to decline to as low as $15,000<\/a> in 2023, down about 45% from current price levels.<\/p>\n This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.\n<\/p>\n<\/div>\nU.S. dollar index’s double bottom<\/h2>\n
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Gold price near key reversal point<\/h2>\n
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M2 money supply declines<\/h2>\n
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Bitcoin price \u201crising wedge\u201d<\/h2>\n
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