Summary Bitcoin is entering into a new consolidation phase after a strong rebound in Q1. The Fed’s tightening monetary cycle might be close to the end. As the US dollar continues to weaken due to accelerated de-dollarization and multi-polarization, Bitcoin may continue to gain momentum in the global financial market. Amid the revolt against the US dollar, Bitcoin may return to above $32,000 thanks to catalysts including a slowdown in inflation, mitigation of energy issues, and a ceasefire in the Russia-Ukraine. Investment Thesis The US dollar faces challenges of de-dollarization, debt crisis, potential economic recession, and the rise of cryptocurrencies like Bitcoin (BTC-USD). Against this backdrop, Bitcoin’s popularity has grown. After finishing the first quarter on a strong note, it is entering a consolidation phase and will have the chance to get back above $32000. Technical Analysis: Entering Consolidation, the Next Major Resistance at $32000 Driven by multiple factors, including tightened monetary policies and the bank crisis, the crypto market performed strongly in Q1 2023, with the total market cap growing by 49% to $1.19 trillion. BTC rose 72% and closed at $28,440, while Ethereum (ETH-USD) rose 53% and closed at $1,827. BTC rebounded after testing the support at $15,000 in Q1. And into a new quarter, BTC is also entering a new journey in terms of weekly and monthly lines. We applied the Donchian Channel (“DC”) indicator to assess the volatility of the market. From the weekly Chart, we can see that the weekly line of BTC still goes below the middle band of $32,000 and it has been slightly fluctuating for over two weeks after the strong rebound. It seems that BTC is still in a post-rebound consolidation phase at the weekly level. Meanwhile, the Average True Range (ATR) indicator has emerged from a long-term downtrend but is still at a low point in the cycle, indicating that the market is still in consolidation. Therefore, by combining the two indicators, we believe if the weekly line breaks meaningfully above the middle band, while the ATR indicator also reverses and breaks through, then it means that BTC will enter a strong upward phase, and it is advisable to enter the market at an appropriate time. Bing Ventures The monthly line of BTC has just experienced three consecutive bullish candles, but it has yet to reclaim the loss from last June when BTC started at $35,000. Combined with the centerline of the DC indicator in the weekly chart, we believe $32,000 might be the next major resistance level. Applying the DC indicator, we can see the monthly line of BTC is still under the middle band but is high above the lower band. Meanwhile, the ATR indicator continues to be in a long-term downtrend. This means an immediate reverse might not be in sight. Indicators such as increased outflows from stablecoins and capital outflows from exchanges also confirm that the rebound is not sustainable. Bing Ventures Macro Environment: Fed’s Tightening Cycle Close to End, Multipolar Reserve System Be the Trend The US non-farm payroll data for April released on May 5 was better than expected and showed the labor market to be resilient. Meanwhile, the Consumer Price Index ((CPI)) report released on April 12 showed inflation slowed again. Although the market’s concerns over the vulnerability of the US Dollar Index increased, considering that economic activity is at a reasonable level and inflationary pressures subsided, we believe the Fed’s tightening monetary cycle might be close to the end. Bureau of Labor Statistics Previously, the Fed’s aggressive tightening policy has resulted in huge capital inflows, leading to a global US dollar crunch. While the USD dollar crunch intensified, it did not lead to liquidity risks. And in the first quarter of 2023, global capital flows into dollar-denominated assets have slowed . Therefore, we believe the US Dollar Index might drop to the lowest level within the year in the coming weeks and remain sideways afterward. Most importantly, the Russia-Ukraine war has made it clear to people in the US dollar system that US dollar reserves can be frozen by the US. The gradual uncoupling from the US dollar and multi-polarization will be the trend in the global financial market. One potential outcome of this trend is for Bitcoin to solidify its position in the global financial landscape. And the performance of US stocks and US treasuries confirmed favorable macro conditions that are conducive to this trend. US stocks’ performance in the first quarter was in line with expectations with both fundamentals and technical indicators in bullish mode. Firstly, the Personal Consumption Expenditures (PCE)’ s below expectation year-on-year increase of 5.1% in February indicated mitigated inflationary pressure, which boded well for the stock market. Secondly, the US economy remained strong and corporate profits continued to grow, providing support for the rebound of US stocks. Thirdly, the employment rate looked good. And in the policy front, the Federal Reserve’s change of attitude also contributed to reducing downward pressures on the market. Bloomberg In Q1, the S&P 500, Dow Jones, and Nasdaq all performed strongly with the Nasdaq leading the increase due to the outperformance of tech stocks. Meta and Tesla shares both increased by over 60%. On the contrary, bank shares underperformed badly. Both the KBW Nasdaq Bank Index and the KBW Nasdaq Regional Banking Index suffered declines. It should be acknowledged that the overall rise of the S&P 500 has covered the sluggishness of the whole market and big tech stocks have become safe harbors for investors. We believe the US economy is at a crossroads in choosing between continued growth in the stock market and an economic recession and one of the largest risks the market will face in the upcoming months will be the US economy falling into stagnation. S&P Dow Jones Indices The ongoing Q1 earnings season and key economic data releases should have a great influence on the performance of the market, especially the data on cooperate profits and economic growth. The Fed turning more dovish will be conducive to a recovery of the market. Performance of the US stocks in Q2 is unpredictable due to the continued existence of some uncertainties from last year, especially the impact of rate hikes on the US economy. Although S&P 500 has been in sideway movements lately, daily volatility is increasing, making it difficult to assess the true healthiness of the market. As S&P 500 companies successively release their Q1 earnings, we believe the EPS predictions will be reduced. Also, we think the trend of narrowing profit margins might continue till the end of the year before restoring growth. The US 10-year Treasury yield often stays in long-term downtrends, but every time it rises to the upper edge of a downtrend channel, a global financial crisis occurs. This time, the speed and degree of its upward breakthrough were unprecedented in 40 years. At present, the yield curve of US Treasuries is rapidly turning positive, which could be a harbinger of a US economic recession. The UK and the Euro-zone were major buyers of US Treasuries, while Japan and Korea pulled money out of the market “unwillingly” and China continued to cut holdings. We believe, in the second quarter, international capital inflows into the US will further slow down and foreign purchases may even register net decreases. Alpha Value Research & Analysis Influenced by the recent banking crisis, investors’ expectations for the US 10-year Treasury yield for the next three months should move downward, but the mainstream opinions will still be for it to fluctuate within 3.4%~3.6%. Barclays According to the Treasury International Capital report , at least 16 countries sold US Treasuries in January this year, including China, Belgium, Luxembourg, Ireland, Brazil, France, Saudi Arabia, Germany, Mexico, Israel, Kuwait, Colombia, Sweden, the Bahamas, Vietnam, and Peru. This trend reflects the growing recognition of the adverse effects of the debt-based economic model of the US and seemingly indicates that the monetary authorities of various countries are increasingly aware of the unreliability of the US debt being a core asset backing the US dollar. Conclusion: BTC is on the way back to above $32,000 We believe as some countries’ fiat currencies collapse due to debt crisis, BTC will demonstrate its power to challenge the incumbent debt-based financial system. As long as the debt size keeps increasing, BTC will command an increasingly larger proportion as a source of capital in the debt recycling pool. In the second half of 2023, we predict that BTC will rise to above $32,000 thanks to catalysts including a slowdown in inflation, mitigation of energy issues, a ceasefire in the Russia-Ukraine war, and the reverse of the M2 supply trend. Bloomberg, TheMarketMemo The above factors will collectively drive the beginning of a new bull cycle. Consumers will gradually see Bitcoin as a store of value and a hedge against M2 inflation instead of a direct hedge against CPI inflation. Particularly in the middle regions of emerging markets that are fraught with frictions from multi-polarization, BTC will become one of the perfect natural alternatives for US dollar dominance. Meanwhile, if the US economy falls into a recession in one of our expectations, the Fed will probably halt rate hikes and there will continue to be an oversupply of money and deficits in government budgets. As competitors of the US dollar system have less power and discretion than the controller of the US dollar system, the possibility of their fiat currencies being weaponized by a few authoritarian politicians is fundamentally eliminated. In this context, Bitcoin’s narrative as a fully stateless currency makes it a more reasonable choice. It can be imagined that the large-scale adoption of Bitcoin could significantly lower the possibility of conflicts among political interest groups. In summary, we are at a critical turning point in the economic cycle, and while the Fed focuses all its attention on managing economic growth and inflation, it will face even greater challenges when unpredictable crises occur in the economy. In that situation, if there is no particularly negative news for cryptocurrencies, BTC will be able to return to above $32,000.
