Bitcoin failed to sustain gains above $40,000 after a brief surge yesterday that pushed it to a high of $40,280. Today’s market action saw BTC slide to a low of $38,750, although the leading cryptocurrency is currently trading just above $39,000, according to price tracker CoinGecko.
The broader market is also showing weakness, with total market capitalization down about 1.8%. Ethereum, the second-largest cryptocurrency by market cap, has fallen roughly 1.5% in the last 24 hours.
Recession Fears Could Influence Risk Assets
Bitcoin’s recent struggles mirror a pullback in equities on Friday, as shares of tech giants Amazon and Apple declined following their earnings reports the previous day. The S&P 500 opened down about 1% in early trading, the Dow Jones Industrial Average opened 0.4% lower, and the Nasdaq Composite was down roughly 0.7%.
Rising volatility may deepen losses amid concerns about tighter monetary policy from the U.S. Federal Reserve. The Fed, which meets next week, is widely expected to raise interest rates by 50 basis points—a move market participants fear could weigh on the economic recovery.
Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, suggests that the prospect of higher rates and excessive tightening by the Fed worsening an economic slowdown could, paradoxically, become a bullish signal for Bitcoin.
In a note shared by email on Friday, Sotiriou wrote:
“U.S. GDP contracted by 1.4% in Q1 2022 as recession fears intensify. That is bullish for risk assets like Bitcoin and equities in my view, because the Federal Reserve may become less hawkish to avoid a recession.”
The 1.4% year-over-year contraction in GDP for the first quarter of 2022 is the largest decline since the second quarter of 2020.
Near-Term Outlook for Bitcoin
Investors should note that Bitcoin’s correlation with equities has increased in recent months.
As a result, equity market declines driven by geopolitical tensions or renewed COVID concerns could pull BTC lower as well.
Conversely, a surge in upward momentum in the stock market could help Bitcoin break through immediate resistance levels. Traders will be watching macroeconomic data, central bank guidance, and on-chain indicators to gauge whether BTC will resume an uptrend or face further downside pressure.