Bitcoin struggled to find clear direction as September and the quarter drew to a close, trading within a tight range as opposing directional forces kept emerging. The king of cryptocurrencies briefly topped $20,000 on Tuesday, rising to its highest level for more than a week, but quickly retraced lower as stocks dived deeper into the bear market territory. Trading sessions where cryptocurrencies and stocks are moving on opposite directions have been increasing lately, igniting bulls’ hopes that Bitcoin is detaching from traditional risky assets and could now act either as an inflation hedge or as a low beta asset.
Inflation hedging characteristics re-emerge
After the significant drop in the British pound following the huge unfunded tax cuts by the UK government, Bitcoin exhibited a characteristic that we hadn’t seen throughout 2022. Specifically, trading volumes between Bitcoin and sterling spiked to a record high, which was interpreted by analysts as a huge rush by investors to protect against the sterling slide. Is this a sign that digital coins could act as a shelter in periods of economic instability, which often leads to significant drops in fiat currencies?
Why cryptos ignore market conditions?
Even though cryptos have been recently defying the mounting macro headwinds for risky assets by trading against the stock markets on some occasions, it is too early to call for a correlation break. Firstly, cryptocurrencies are currently trading closer to their 2022 lows than equities are, thus any declines are facing solid support at ‘buy the dip levels’, whereas the downside potential for stocks is actually greater.
Moreover, data from crypto brokers suggests that the majority of crypto holders right now are long-term investors who believe that digital coins could thrive in the future, whereas most speculators have already left the market. Therefore, it could be concluded that cryptos are resilient during this market turmoil not because of their short-term positive prospects, but due to the absence of large sellers.
Consolidation at low levels resumes
Taking a technical look, Bitcoin has been consolidating within the $18,000-$20,000 range in the past two weeks, waiting for developments that could provide strong directional impetus.
Hence, should the broader downfall continue, the price could descend to test the lower boundary of its sideways move at $18,150. A violation of the latter might open the door for the 2022 low of $17,588.
On the flipside, bullish actions may encounter initial resistance at the crucial $20,000 psychological mark, before the recent peak of $22,775 comes under examination.