- Bitcoin has bounced off a five-month support line after a sharp drop
- The cryptocurrency remains inside a wedge dating back to the November highs
- Equities markets are suffering too as inflation woes continue
Bitcoin has once more tested the support line of a five-month wedge following a sharp drop in line with equities. The cause of the drop in the equity market is thought to be related to an anticipated increase in inflation in today’s Consumer Price Index update, with Bitcoin following the traditional markets in its role as a risk-on asset. The support line of the wedge held up, for now, although with the likes of the S&P 500 printing lower highs and looking likely to test their own two-year long support lines imminently, the respite may not be for long.
Five-month Support Line Holds
Bitcoin has been trending south ever since it failed to break through the $48,000 area, setting up a very clear resistance line in the process. It touched $39,000 yesterday, right on the wedge support line which dates back to January 2022:
The reaction over the next few days will be key to Bitcoin’s short term performance, with a low bounce and a collapse through the support line bringing the likelihood of another test of $30,000. A break and close above the resistance line however would signal a potential spring bounce towards the $50,000 range.
Given that Bitcoin acts as a tech stock these days, we need to see where the traditional markets are heading…and it doesn’t look good:
As we can see, the major stock indices have put in significant lower highs, with the Nasdaq in particular putting in the most troublesome-looking lower high since the dot com crash way back in 1999. It seems inevitable that these trendlines will be tested again where, like Bitcoin, we will learn a lot about short-mid term performance.
Inflation News Priced In?
The only rays of sunshine on the horizon are that today’s anticipated inflation jump has already been priced in, and that the data will either be equal to or better than the predictions. This could lead to a rally in stocks, although this in itself may only be short lived as the Federal Open Market Committee (FOMC) meets in June to decide whether to raise interest rates to tackle inflation.
Such a move would further decimate the equities market, something the Federal Reserve will be loath to do, but with the cost of living spiraling they may have no choice, potentially signaling a bear market for Bitcoin and equities.