Bitcoin is currently trading below the $70,000 mark. However, data firm Ecoinometrics warns that the cryptocurrency may not be nearing a recovery. Instead, it faces vulnerability to further declines due to three interconnected factors: softening equity market momentum, structural shifts in Bitcoin's volatility, and a steady but unsupportive Federal Reserve.
Ecoinometrics' report indicates Bitcoin is no longer isolated, now closely tied to equity markets, capital flows, and macroeconomic conditions. Currently, this correlation is unfavorable. Bitcoin shows weakness, equity markets are losing steam, and the Federal Reserve's neutral stance offers minimal liquidity support, elevating downside risks.
While Bitcoin has seen recent attempts at stabilization, Ecoinometrics suggests this is not a bottoming pattern but a pause in a bear phase. Structural headwinds include ongoing outflows from Bitcoin exchange-traded funds (ETFs) and a general "risk-off" sentiment in financial markets.
The firm notes Bitcoin is trading below its long-term trend, with its 200-day moving average declining, indicating a bearish structure. In contrast, the Nasdaq 100, despite a stall, still shows a rising 200-day moving average, suggesting a slowdown rather than a confirmed structural downturn.
This divergence is crucial. Bitcoin's isolated declines can be gradual, but historically, sharp equity market downturns often lead to steep Bitcoin drops.
Beyond price action, Bitcoin's volatility has significantly compressed. Unlike previous cycles, peak volatility this time has been lower, influenced by steady ETF flows from institutional investors. This integration into institutional portfolios has made Bitcoin more sensitive to equity market drawdowns.
On the policy front, the Federal Reserve's stance remains steady, with inflation improving but not fully contained and a resilient labor market. This means rate cuts are not urgent, and rate hikes are not imminent. While this stability avoids policy shocks, it offers little support if risk assets decline.