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BTC Stock Correlation ‘Not What We Want’ – 5 Things to Know About Bitcoin This Week

Bitcoin (BTC) starts the second week of April with a whimper as bulls struggle to hold support above $40,000.

After a weekend of refreshingly low volatility, jitters returned to markets at the recent weekly close, and in classic style, BTC/USD fell in the final hours of Sunday.

The average hodler currently feels caught between two chairs – macro forces are promising big trend shifts but are slow to catch on, while broader cryptoassets also lack “serious” buyer demand.

At the same time, insiders are showing no doubt about the future, as evidenced by Bitcoin network fundamentals at all-time highs and more.

The combination of these opposing factors is price action that just doesn’t seem to know where to go next. Can anything change in the coming week?

Cointelegraph takes a look at five potential Bitcoin price clues as a $40,000 retest draws closer.

No “massive drawdown” for BTC?

Monday begins with a $42,000 reclaim for BTC/USD, which the pair briefly lost overnight as it dipped into the weekly close.

Bitcoin hit its lowest level in weeks at $41,771 on Bitstamp, matching where it was on March 23.

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BTC/USD 1 Hour Candlestick Chart (Bitstamp). Source: TradingView

In doing so, the largest cryptocurrency also gave up all gains from the interim to fall back to the top of its trading range from last month. However, this could result in a retest of former resistance as support and rather than fearing the worst, many traders are hoping a reversal would set in soon.

“Bullish retest of flipped weekly level, Finex whale filling bids, I buy the dip. If you want to wait for confirmation, you can wait for a monthly close to confirm,” popular Twitter user Credible Crypto wrote as part of comments overnight.

Credible Crypto commented on both Bitfinex’s walk buy and new chart data showing that Bitcoin’s Aroon indicator has turned bullish over the past few days.

Designed to identify uptrends or downtrends in an asset, Aroon has only provided such bearish-to-bullish “crosses” six times since 2017 – the time of Bitcoin’s previous blow-off top.

As Cointelegraph reported, trader and analyst Rekt Capital also had plenty of reasons to be bullish on Bitcoin, but at around $42,150, the weekly close ultimately disappointed compared to his $43,100 demand.

“A BTC weekly candle close like this and retesting ~$43,100 as new support would be successful,” he explained alongside a chart Sunday.

“Therefore, BTC would be positioned for a move higher within the ~43,100 – $52,000 range as shown in the previous blue circle.”

Meanwhile, Cointelegraph contributor Michaël van de Poppe too written down that the late dip Sunday had closed the potential for a CME futures gap to provide a short-term price target early in Monday’s trading.

Equities were under pressure across the board

It’s a bleak day for stocks as Asia leads with widespread losses, in no small part due to China’s recent coronavirus lockdowns.

Both the Shanghai Composite Index and Hong Kong’s Hang Seng fell over 2% in morning trade.

In Europe, markets were not yet open at the time of writing, but ongoing geopolitical tensions, centered on Russia, showed no signs of changing.

A glimmer of hope for the euro came in the form of a possible lead of incumbent French President Emmanuel Macron over far-right rival Jean-Marie Le Pen in polls.

Looking beyond the short term, however, analysts are observing worrying trends: soaring inflation, losses in bond markets and a seeming inability for central banks to react yet.

The European Central Bank (ECB) will meet this week with a focus on controlling inflation – ending asset purchases and raising interest rates.

The situation underscores the difficulties equities and risk assets face in the current climate. With commentators unanimous that the inflationary environment and associated central bank actions will reduce demand for bitcoin and crypto, the true extent of the economic reality is already clear.

in one Previous Holger Zschaepitz revealed in a Twitter post last week that despite all the gains in the S&P 500, the Fed’s asset purchases, for example, mean progress since the global financial crisis has actually stalled.

“Just for context, the S&P 500 may have hit a new ATH today, but when you put the index in relation to the Fed’s balance sheet, it’s trading at the same level it was in 2008, so stocks have traded sideways since 2008, which is essentially the balance sheet expansion,” he wrote.

down together?

For Arthur Hayes, ex-CEO of derivatives giant BitMEX, the bullish case for Bitcoin as a store of value is still there given the failure of fiat.

The problem is that such a scenario is not a reality – yet.

In his latest blog post published Monday, Hayes reiterated the warning that for the average investor with significant exposure to risky assets, the pain would precede the gain.

The future may well see a shift from US dollar hegemony to other assets by nation states and individuals alike, but in the meantime, macro forces will continue to take their toll on crypto.

If stocks are to plummet as central banks act to fight inflation, crypto’s increasing correlation with them means only one thing.

“The short term (10 day) correlation is high and the medium term (30 day and 90 day) correlations are moving up and to the right. We don’t want that,” Hayes argued about crypto correlations with the Nasdaq 100 (NDX).

“For me to fly the flag to support selling fiat and buying crypto ahead of an NDX meltdown (30% to 50% drawdown), correlations need to be demonstratively trending down across all timeframes.”

Could stocks really lose half their value from the Fed and its actions? It would be anyone’s guess, Hayes said.

“30% less? … dropped by 50%? … Your guess is as good as mine,” he added.

“But let’s be clear — the Fed has no plans to expand its balance sheet again any time soon, which means stocks won’t continue to rise.”

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April 4 balance sheet of the Federal Reserve (screenshot). Source: Federal Reserve

The mood deviates from the traditional markets

With macro gloominess on the horizon, it’s no surprise that market sentiment has taken a hit.

After feeling “greed” in crypto in late March, the Crypto Fear & Greed Index is now firmly back in “fear” territory.

An analogue of the traditional market’s Fear & Greed Index, the metric has lost half of its normalized score in less than two weeks as traders get cold feet again.

On Monday, Crypto Fear & Greed measured 32/100 while its traditional market counterpart was higher at 46/100, defined as “neutral”.

Deserved or not, Van de Poppe, meanwhile, reminded readers not to act on sentiment scores.

“Everyone has been super bullish on the markets but now the markets are starting to correct and fear is taking over,” he said summarized.

“Sentiment is not a good indicator of how you should normally trade.”

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Crypto Fear & Greed Index (Screenshot). Source: Alternative.me

Basics keep the faith

A glimmer of hope comes this week from a trusted source — despite all the price declines, Bitcoin’s network difficulty is set to drop just 0.4% over the next few days.

Related: Top 5 Cryptocurrencies to Watch This Week: BTC, NEAR, FTT, ETC, XMR

Arguably the most important aspect of the Bitcoin network’s self-sustaining paradigm, difficulty, will adjust downward from all-time highs to reflect changes in mining composition.

The small size of the adjustment suggests miners remain financially buoyant at current levels and are not struggling despite BTC/USD’s 10% plunge over the past week.

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Bitcoin difficulty 7-day moving average chart. Source: Blockchain

More data supports the argument, with hash rate estimates from monitoring resource MiningPoolStats also lingering at record highs.

As Cointelegraph reported, mining continues to attract large investments, including from Blockstream, which last week announced a solar-powered farm that is expected to generate a hash rate of 30 petahashes per second once operational.

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Chart of estimated bitcoin hashrate (screenshot). Source: MiningPoolStats

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.