Understanding the Current Bitcoin Market Dynamics
A reliable momentum indicator that previously signaled a surge in bitcoin’s price post-election has recently shifted to a bearish stance. This change coincides with President Donald Trump’s escalating rhetoric regarding tariffs, which poses a potential risk to market stability. However, there’s no immediate cause for alarm.
The MACD Indicator Explained
The momentum indicator in question is the Moving Average Convergence Divergence (MACD) histogram, a popular tool used to assess the strength and direction of a trend. The MACD is calculated by subtracting the average price of bitcoin over the last 26 weeks from its average price over the past 12 weeks.
To further refine this analysis, a signal line is derived, which represents a nine-week average of the MACD itself. The difference between the MACD and this signal line is visualized as a histogram, offering traders insights into potential trend reversals.
Current Trends and Market Analysis
Recently, the MACD on bitcoin’s weekly chart has crossed below zero, indicating a bearish momentum shift. In contrast, crossovers above zero typically signal a bullish trend. This indicator had turned positive in mid-October, reinforcing the expectation of a price surge toward $100,000.
While the bearish MACD signal may raise concerns among bullish traders and retail investors who depend on technical analysis, it’s essential to note that bitcoin’s price action is not currently supporting this negative reading. At present, BTC is trading within a broader range of $90,000 to $100,000, with more recent fluctuations confined to a tighter range of $95,000 to $100,000. This sideways trading pattern reduces the weight of the MACD’s bearish crossover.
The Importance of Price Action Confirmation
It is crucial to remember that technical indicators like the MACD are derived from price action, not the other way around. Confirmations of MACD signals require corresponding price movements. The previous bullish MACD signal in mid-October was validated by bitcoin breaking out of a multi-month trading range.
Potential Market Volatility from Tariff Threats
While the MACD’s current reading is not a major concern, various macroeconomic factors merit attention, as they could introduce downside volatility and test bitcoin’s long-standing support near $90,000. A drop below this support level would lend credence to the MACD’s bearish reading and confirm a shift in momentum.
One of the primary concerns is President Trump’s tariff rhetoric, which could potentially lead to increased bond yields and a decline in risk assets.
In a recent statement, Trump announced plans to impose 25% tariffs on all steel and aluminum imports, in addition to other metal duties set to be revealed later this week. He has also suggested that higher tariffs on a broader range of goods imported from the European Union may be implemented later in the month, according to UBS.
Inflation Expectations on the Rise
The University of Michigan’s consumer sentiment survey, released last Friday, indicates that the threat of tariffs is already affecting consumer expectations regarding price pressures. Inflation expectations for the upcoming year have risen to 4.3% in February, up from 3.3% in January, marking the highest level since November 2023.
This uptick in inflation expectations could hinder the Federal Reserve’s ability to cut interest rates rapidly. “Two-year inflation swaps have begun to incorporate a risk premium related to tariffs. At 2.72%, they have reached new highs. The market interprets that the Fed is on a prolonged pause: growth remains stable, and even if inflation falls to around 2%, there’s no rush to lower rates,” noted Alfonso Peccatiello, author of Macro Compass.
Looking Ahead
The upcoming release of the U.S. Consumer Price Index (CPI) data for January, scheduled for February 12, will be crucial in shaping market sentiment and influencing potential trading strategies. Investors and traders alike should remain vigilant as they navigate the evolving landscape of the cryptocurrency market amidst these macroeconomic developments.
