The Bitcoin price continues its upward trend, defying bad news, most notably the Commodity Futures Trading Commission (CFTC) filing a lawsuit against Binance. While BTC dropped 5% within an hour of the news, the bulls have already erased those losses.
In light of the Binance lawsuit and the hawkish stance of the US Federal Reserve (Fed) at the last FOMC meeting, the Bitcoin price is showing remarkable resilience. Despite the negative news, Bitcoin is managing to shake it off relatively quickly, indicating the relative strength of the bulls. In the medium term, this supports the case for higher BTC prices, with the $28,800 area remaining the key resistance zone.
On Friday, the release of the Personal Consumption Expenditures Price Index (PCE) in the US is likely to provide a key signal for the market. The PCE is the Fed’s favored inflation gauge and could provide major volatility once again depending on the data. The reasons for the current Bitcoin price rally are various.
Macro Outlook And A Potential Fed Pivot
During the last FOMC meeting, the US central bank published its projections for interest rate policy this year (dot plot) and predicted no rate cuts. In the past week, the Fed has repeatedly stated that it does not expect any rate cuts in 2023.
However, financial markets are calling this a bluff. As the analysts of The Kobeissi Letter note, analysts see a 50/50 chance of a 25 basis point rate hike in May. However, the futures still call for at least three rate cuts by December 2023.
Bitcoin is known to be a sponge that soaks up loose monetary policy. Accordingly, Bitcoin investors seem to be maintaining their bullish stance at the moment, despite the CFTC lawsuit against Binance.
DXY Provides Bullish Environment For Bitcoin
Probably also supporting the price at the moment is the continued weakness of the US Dollar Index (DXY). The fall of the DXY from 105.94 on March 7 to now only 102.68 is undoubtedly providing a tailwind for the Bitcoin price.
Another drop towards the yearly low under 101 will likely further fuel the Bitcoin price without a doubt. Traders should therefore keep an eye on the DXY due to the inverse correlation.
Persistent Banking Crisis Boosts BTC
Also bullish for Bitcoin is the ongoing banking crisis in the United States. As NewsBTC reported, more than $2.5 trillion in commercial real estate debt will come due over the next five years, with smaller banks holding 70% of commercial real estate loans. Elon Musk called this the “most serious looming problem” in the banking system.
Meanwhile, US President Joe Biden admitted yesterday that the US banking crisis is “not over yet.” Smaller banks in particular continue to be the focus of the crisis.
As renowned analyst Rany Woodward explained via Twitter, deposits of small banks that are not among the 25 largest banks fell by $125 billion last week, of which $65 billion was accounted for by the 25 largest banks. “NOT good for communities as small community banks will have to tighten credit availability,” Woodward wrote.
Short Liquidations Drive Bitcoin Higher
On the support side, the bulls were able to parry any sell-off attempt by the bears yesterday. Bitcoin tested and held the key support for the current momentum at $26,800 in the smaller time frames.
On a breakdown, the first bearish target would have been at around $25,300. However, the bulls have had the upper hand, leading to major short liquidations in the Bitcoin market – although thin liquidity may also have contributed to the swift move.
Thus, a classic short squeeze has propelled BTC in explosive move to a new five-day-high today. According to Coinglass data, about $60 million in shorts were liquidated today in the overall crypto market, $27.5 million in Bitcoin. However, analyst Skew is warning:
BTC Binance Spot Heatmap: Thick ask liquidity between $28K & $30K Would need some sizeable market buying to push through here.
At press time, the BTC price was at $28,515, eyeing the resistance zone at $28,800.
Featured image from iStock, chart from TradingView.com