After a brief upward push yesterday that drove Bitcoin to highs of $40,280, the cryptocurrency failed to hold above the $40,000 mark. Today’s market movement pulled BTC down to lows near $38,750, though the benchmark crypto is trading just above $39,000 according to data from crypto price tracker CoinGecko.
The negative shift is visible across the broader market as well, with total market capitalization down about 1.8%. Ethereum, the second-largest cryptocurrency by market cap, has fallen roughly 1.5% over the past 24 hours.
Recession Fears Could Support Risk Assets
Bitcoin’s recent struggles coincide with a slowdown in equities on Friday: shares of tech giants Amazon and Apple slipped after their earnings reports the day before. The S&P 500 opened early trading about 1% lower, the Dow Jones Industrial Average was down around 0.4%, and the Nasdaq Composite fell roughly 0.7%.
Volatility is likely to rise further amid concerns about tighter U.S. monetary policy. The Federal Reserve is expected to raise interest rates by 50 basis points when it meets next week—an action market watchers say could affect the economic recovery.
Marcus Sotiriou, an analyst at digital-asset broker GlobalBlock, says the prospect of larger rate hikes and an overcorrection by the Fed could accelerate an economic slowdown—an outcome that might prove bullish for Bitcoin.
In a note shared by email on Friday, Sotiriou wrote:
“U.S. GDP contracted by 1.4% in the first quarter of 2022 as recession fears increased. In my view, this is constructive for risk assets such as Bitcoin and equities because the Federal Reserve may become less restrictive to avoid a recession.“
The 1.4% year-over-year decline in GDP in Q1 2022 marks the first time the economy has contracted at that rate since the second quarter of 2020.
Bitcoin’s Near-Term Outlook
Investors should note that Bitcoin’s correlation with equities has strengthened in recent months.
As a result, declines in stock markets driven by geopolitical tensions, renewed COVID outbreaks, or general risk aversion could drag BTC lower.
Conversely, renewed upward momentum in equities could help Bitcoin break through nearby resistance levels and push higher.