Bitcoin has broken down a bit during the trading session on Friday to test the $40,000 level. The $40,000 level has been important a couple of times, and of course has a certain amount of psychological importance built into it as well. It does look like we are trying to hang on to it but at this point in time when we get the first hint of “risk off” behavior, Bitcoin is going to get crushed.
Bitcoin needs to rally in order for the rest of the crypto markets to rally as well, so everybody will be paying close attention to this market. Keep in mind that as we head into the weekend, liquidity becomes an issue so if we do get some type of major negative headline out there, perhaps geopolitically, that could send Bitcoin plunging rather quickly. On the other hand, it could also turnaround just as quickly if we get really good news from the geopolitical front, most specifically Russia/Ukraine. Yes, I understand that most crypto traders have no idea what the two have to do with each other, but the reality is that large money inflows into the crypto markets means that they are starting to act like any other risk asset. In other words, it is not the crypto markets that you remember from a few years ago, it is now just another market.
If we were to turn around and breakout above the 200 day EMA, something that is $5000 from here, then Bitcoin could be making an argument for a bigger move to the upside, perhaps something that is a bit more sustainable. That being said, I do not expect to see that happen in the short term, because between monetary policy tightening and geopolitical concerns, it is difficult to imagine a scenario where we would have a massive amount of risk-taking. Yes, we may get the occasional move higher, but at the end of the day, Bitcoin is going to move very much like a currency that is farther out on the risk spectrum, maybe something like the New Zealand dollar or the Norwegian krone. If the US dollar suddenly strengthens, that of course works against the value of the Bitcoin market as it is priced in those very same greenbacks. The days of 15% gains are more likely than not gone.
