Since the beginning of 2023, Bitcoin (BTC) has experienced a classic stairstep bull run, marked by gradual price increases followed by periods of consolidation. This pattern has created a foundation for future upward movements. Currently, Bitcoin is consolidating its price within the $90,000 to $100,000 range, a critical phase in the broader bull market that began from a low of $20,000. Many analysts anticipate that this consolidation will soon lead to a bullish breakout, similar to the patterns observed in mid-2023. However, several key developments may indicate a potential halt to this upward momentum.
Tightening U.S. Dollar Liquidity
One of the primary factors that can impact asset classes, including cryptocurrencies, is the tightening of liquidity in the fiat market, particularly regarding the U.S. Dollar (USD). Arthur Hayes, chief investment officer at Maelstrom, has pointed out that the current tightening of dollar liquidity is concerning for Bitcoin bulls.
Recent data from MacroMicro highlights a significant increase in the cash balance held in the Treasury General Account (TGA) — the U.S. government’s checking account at the Federal Reserve — which has surged from $623 billion to $800 billion in just four weeks.
As the U.S. reached its debt ceiling of $36 trillion last month, market participants hoped that the Treasury would reduce its TGA balance to enhance liquidity in the economy and markets. This was a strategy employed during the previous debt ceiling crisis in early 2023, which fueled increased risk-taking in both equity and cryptocurrency markets.
Experts caution that the current tightening of liquidity could lead to a slowdown in economic activity, rising borrowing costs, and a more challenging environment for risk assets, including Bitcoin. Anddy Lian, a blockchain expert, emphasized on social media that key liquidity sources are becoming restricted, which could have significant ramifications for Bitcoin’s price trajectory.
Uncertainty Surrounding a Strategic Bitcoin Reserve
Since taking office, former President Donald Trump has been notably active in implementing various campaign promises related to tariffs and international affairs. However, one area where his administration has shown caution is in the establishment of a strategic Bitcoin reserve. This initiative was previously a major driver behind Bitcoin’s price surge from $70,000 to over $100,000.
Currently, the Trump administration is reportedly “evaluating” the feasibility of creating a Bitcoin reserve, which has disappointed many crypto investors who were expecting decisive action. Jim Bianco, president and macro strategist at Bianco Research, criticized this shift, suggesting that “evaluate/study” often signals a lack of commitment to an initiative.
This uncertainty contributed to a drop in Bitcoin’s price, as it fell from over $100,000 to $96,000 following comments from Trump’s crypto advisor about the administration’s cautious approach to the Bitcoin reserve.
Technical Indicators Suggest a Bearish Trend
For those analyzing Bitcoin’s potential future movements, the 14-week relative strength index (RSI) is a crucial indicator to consider. Recently, the RSI has shown a bearish divergence, reminiscent of patterns observed at the peak of Bitcoin’s price in 2021. This divergence indicates a slowdown in bullish momentum, as the RSI has produced a lower high compared to its previous peak in December.
If the RSI can break above the downward trendline that marks this divergence, it could signal a revival of bullish momentum. However, the current negative setup raises concerns about a potential price correction, mirroring the behavior seen in the 2021 market.
In summary, while Bitcoin has been on an impressive bull run, the confluence of tightening liquidity, uncertainty surrounding strategic initiatives, and bearish technical indicators presents challenges that could impede its progress within the $90,000 to $110,000 range. Investors should remain vigilant and consider these factors as they navigate the evolving cryptocurrency landscape.
