Bitcoin's price action in June 2022 was one of the worst monthly price performances in the coin's history. However, the digital asset has been stabilizing for the last two weeks. Investors have finally accepted the new rules of the game and have adapted to the current market and macroeconomic situation. This is indicated by the upward dynamics of a number of coins as well as the daily trading volume of $30 billion. Apparently, bitcoin has bottomed out in fundamental and technical terms. Does this mean that consolidation and an emerging uptrend are ahead?
Bitcoin's decline to $17.7k was caused by a large number of factors. Aggressive monetary policy hurt investors, and inflation continued to rise. All this time, Bitcoin was hitting local lows. When the inflation rate reached 8.6% contrary to the Fed's claims, panic reigned in the market. It was provoked both by the current situation and the US central bank's further steps to fight inflation. Coupled with the troubles of miners stemming from the global energy crisis, all this fueled the general bearish trend in the crypto market.
As a result, BTC broke through the 200-week moving average, the crypto Fear and Greed Index dropped to 6, and miners and long-term investors closed their bitcoin positions. Despite such an impressive drop, which has become the largest one in the history of the crypto market according to leading analysts, one cannot be sure that the downtrend is over. Investors adapted to the new reality and revised their investment approach, which directly affected the price. However, it is important to understand that the negative fundamental factors provoking inflation growth remain. This means that bitcoin is still at risk of extending losses.
As of July 5th, bitcoin has rebounded above $20,000 thanks to the local upside momentum. This can be attributed to a similar movement of the SPX index. Bitcoin's dependence on the stock market remains strong, which also points to a possible further decline. Bloomberg analysts are confident that despite a $34 trillion drop in stock market capitalization, the downtrend will continue.
There is a likelihood that the cryptocurrency will be able to destroy correlation with stock indices as the free volume of coins in circulation decreases. In this case, the asset will become in demand as a savings asset. An important indicator that will confirm this transformation will be correlation with gold. As of July 5, gold is moving sideways with no upside signals. This indicates a lack of interest in precious metals, which means that the focus of investors is on other assets.
Despite signs of more positions being accumulated in the cryptocurrency, its correlation with stock indices remains. The current lull in the crypto market and local consolidation are related to the same period in the stock market. This suggests that investors prefer SPX to bitcoin or other digital assets while assessing the market potential. Given the statements of Fed officials about their intention to continue with its current aggressive monetary policy and the ongoing process of liquidity withdrawals, there is no reason to believe that the correlation between BTC and stock indices will disappear.
This suggests that in case of major market events that could affect the stock market, one should be ready for the next round of a decline in the cryptocurrency market. Fed Chair Jerome Powell said in a statement that the current inflation rate could persist for at least a few more months. Given that, there are two possible scenarios of the asset's dynamics in July-August 2022. The first one implies a sideways movement with attempts to locally break through new support / resistance zones. The second scenario suggests another stage of losses caused by the worsening global economic situation, which in turn will lead to a drop in the overall market capitalization of crypto assets.
