Written by Samer Hasn, Senior Market Analyst at XS.com
Bitcoin is up more than 1% today, recovering some of its previous losses from yesterday and currently holding above $82,000.
Bitcoin’s losses come amid a risk-off environment amidst the market’s ongoing caution regarding Donald Trump’s sudden and hesitant steps regarding escalating the trade war.
Hardly a day goes by without a new escalation in the trade war. The latest was yesterday with Trump’s threat to impose 200% tariffs on EU alcohol imports, following the latter’s imposition of a similar 50% tariff on US imports.
While this sector affected by yesterday’s trade escalation is limited compared to the economies of both powers, the mutual escalation could gradually lead to a full-blown trade war, which could raise market concerns about its repercussions amid growing talk of a potential recession in the United States.
Not only is this causing market turmoil, but Trump’s continued hesitation over tariffs –particularly regarding Canada and Mexico – keeps a state of caution and may prevent investors from placing bullish bets. The weak risk appetite is also contributing to the ongoing decline in the stock market, without which Bitcoin will not be able to regain its upward trend. Meanwhile, the S&P 500 has entered a correction area after falling 10% from its all-time high.
This extremely low risk appetite is reflected in the muted Bitcoin futures market this week. Futures open interest barely moved within a range of 580,000-560,000 Bitcoins, or $47 billion, according to CoinGlass figures. This week also saw the liquidation of long positions of more than $1.5 billion, further justifying the continued downward pressure on prices.
Furthermore, Bitcoin spot exchange-traded funds recorded net outflows of $870 million so far this week, nearing to their fifth consecutive week of negative inflows, an unprecedented pace since the ETFs’ inception, according to SoSo Value figures.
On the upside, despite Bitcoin’s bear market, the crypto market appears to be continuing to attract attention from the highest levels. The Wall Street Journal reported that representatives of the Trump family have held discussions about a stake in Binance.US.
Trump’s increased direct involvement in cryptocurrencies may make him more committed to his previous promises to reform the sector’s regulatory environment. This is in addition to the $2 billion investment by the UAE’s sovereign wealth fund arm, MGX, in Binance.
On the legislative front, we are seeing growing momentum in Congress to enact legislation that would pave the way for loosening restrictions on the sector, which could accelerate the integration of crypto technology into the economy and financial system. Recently, the Republican Party is seeking to pass legislation that would ease restrictions on cryptocurrency companies’ access to the banking system (known as debanking), according to The Journal last week.
Therefore, I believe that as the market recovers from the turmoil caused by tariffs and becomes more certain about the direction of trade policy, cryptocurrencies may find themselves in a better place than they were previously.
On a technical note, Bitcoin’s Market Value to Realized Value (MVRV) ratio, which helps determine whether the price is overvalued, appears to have reached an accumulation area of the last year, located between 1.9 and 1.7.
Source: TradingView
