Economic Headwinds: Trade Tensions and Slowing Growth
The U.S. economy faces mounting challenges as new tariffs take effect, with concerns over inflation, rising unemployment, and weakening growth. Goldman Sachs projects a slowdown, with recession risks increasing in the coming months. Meanwhile, Federal Reserve officials acknowledge the uncertainty ahead, with Federal Reserve Bank of New York President John Williams stating, "I expect the economy will continue to grow, but slower than last year."
Inflation remains above the Fed's 2% target, with forecasts suggesting it could reach 3.5% in 2025. As a result, the Fed is expected to cut interest rates three times this year to support the economy, an adjustment from earlier projections of two cuts. However, questions remain about whether these cuts will be sufficient to offset broader economic headwinds, "as people at all income levels worry they will be worse off in a year."
Trade Policy Uncertainty
Trump's proposed tariffs, potentially as high as 20% on key trading partners, could further disrupt global markets and add pressure to economic growth. While exclusions may soften the impact, businesses and consumers are bracing for the effects of prolonged trade tensions.
Bitcoin's Role in a Shifting Economy
Bitcoin is currently down roughly 25% from its all-time high of $110,000 per BTC. This decline follows a more than 10% drop in the S&P 500 from its highs.
The last time the S&P 500 fell more than 10% from its all-time highs was in early 2022, after inflation began rising in early 2021. By the time the S&P 500 was down 10%, Bitcoin had already fallen over 50%!
Bitcoin has historically demonstrated volatility within the financial markets. While it still possesses these characteristics today, its role has evolved alongside the broader economy.
In recent times, Bitcoin has established itself as a trusted currency used in trade. Recently, Russia began utilizing Bitcoin in oil transactions with China, and it is expected to continue being adopted by other countries that lack the currency power of the U.S. and similar nations.
With the increased fundamental use of Bitcoin, the currency has maintained strength even during recent downward movements in U.S. equities.
Key Levels to Watch
At the end of the day, Bitcoin is not immune to downside movements. As discussed, it has recently faced downward pressure despite bullish catalysts due to macroeconomic concerns.
This can be observed when looking at Bitcoin’s ETF inflows vs. outflows, which shows that the total cumulative flow has decreased since early February.
When analyzing key levels for Bitcoin, it is crucial to understand the market’s current structure and the narrative behind certain levels. One major level with significant narrative importance is the low that was printed on the charts just before the U.S. election. Currently, Bitcoin is trading 23% above this election low, whereas both the S&P and Nasdaq are trading below their respective election lows.
This highlights Bitcoin’s relative strength compared to the U.S. stock market, even amid economic uncertainty. However, it is also a key level that Bitcoin should remain above if higher prices are to be seen in the coming weeks and months.
The next level traders and investors should watch is the 50% retracement of the weekly trading range. This is shown on the chart above, measured from the swing low formed before the expansion toward $100,000 to the high that formed during Trump’s inauguration.
This price level is $79,446.5, a short-term level for Bitcoin to hold on the weekly chart. If this level breaks, it could signal a potential breakdown of the 50 EMA, which may then lead to a move toward the election low of $66,810.0.
When analyzing Bitcoin on lower time frames, you may encounter more noise. However, there are key levels to watch that could provide a short-term outlook, especially if bullish reactions begin to emerge.
As you zoom into the daily chart, you gain more detail. Here, we can see the election low more clearly, which formed just before the U.S. election. This is the level, as mentioned, that you’d want to see Bitcoin stay above to maintain the potential HTF bullish trend.
Within the HTF range, there are two major support zones to monitor. The first is the area where BTC initially bounced, which aligns with the 50% retracement level on the weekly chart. The second is the low 80-82k range, where Bitcoin is currently trading.
The best-case scenario, similar to the bounce seen in stock indices to start the week, would be for Bitcoin to hold the first support range and potentially continue short-term, moving back up to the previous swing high, which is around $88,000.
The worst-case scenario is that the stock market continues its bearish trend, and Bitcoin starts to make its way down to the election low.
Bull or Bear?
Bitcoin has shown more strength recently during the downturn the stock market has experienced over the last two months.
Based on that strength and the current structure of Bitcoin, along with positive fundamentals, Bitcoin still appears to have a strong bullish case, even amid uncertainty. However, the key levels discussed will be crucial to monitor as they will serve as a guide.
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