02.06.2023 04:31 PM
Bitcoin loses out to artificial intelligence

What is Bitcoin? A risky asset that sensitively reacts to rumors of a pause in the Federal Reserve's rate hikes and an improvement in global risk appetite? But then, why does BTC/USD remain indifferent to the rally in the Nasdaq Composite? Or is it a safe haven asset that could demonstrate phenomenal results in the event of a default in the U.S.? Then how do we explain the token's surge in response to news of a debt ceiling agreement? To effectively trade any asset, it is necessary to understand its nature. And with the leader of the cryptocurrency sector, it is not easy to do so.

In theory, Bitcoin could even be considered a commodity. Indeed, the token's supply is growing rapidly due to decreasing electricity prices and the emergence of new supercomputers. At the same time, demand is declining amid increased regulatory scrutiny and various scandals in the crypto industry. Trust is earned over years and can be easily lost. Fraud in the sector, blockchain issues, the crash of FTX and Terra Luna make investors think thrice before investing in cryptocurrencies.

To restore trust, a leap in development or an increase in volatility is needed to attract speculators. Unfortunately, Bitcoin cannot boast of this at the moment. The 30-day volatility of its quotes has dropped to the lowest levels since the beginning of the year. The decline in speculative interest in cryptocurrency became one of the factors contributing to its nearly 8% drop in May. The closing of BTC/USD in the red zone marked the first time in the last five months.

Monthly dynamics of Bitcoin

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The decline in Bitcoin demand is due not only to a decrease in trust and volatility but also to capital outflows to other markets. Primarily, this refers to U.S. technology company stocks. The hype surrounding artificial intelligence has propelled the Nasdaq Composite by over 25% since the beginning of the year. The stock index has gained almost 9% in the last month, significantly outperforming the leader of the cryptocurrency sector.

It is not surprising that the correlation between BTC/USD and the U.S. stock market continues to decline. Investors are willing to invest in the Nasdaq Composite even in the event of a recession in the American economy, especially since the Federal Reserve intends to pause its tightening monetary policy. This is good news for stock indices.

Dynamics of Bitcoin and Nasdaq Correlation

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Bitcoin faced some pressure from inflated expectations. Investors considered the token the best investment option in the event of a U.S. default, second only to gold. The agreement to suspend the debt ceiling until 2025, with subsequent ratification in Congress, deprived BTC/USD of the opportunity to showcase its best qualities.

Technically, on the daily chart of Bitcoin, there was an unsuccessful attempt by the bulls to attack with the aim of restoring the upward trend. I don't think that token enthusiasts will give up because of it, especially since the Wolfe Wave and Double Bottom patterns are joined by the 1-2-3 pattern. Breaking through the resistance at 27,630 will provide a basis for buying BTC/USD.

Marek Petkovich,
Analytical expert of InstaForex
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