Four concerning graphs for Bitcoin supporters as $27K emerges as a significant obstacle.

Bitcoin (BTC) has surged nearly 60% to approximately $27,000 in 2023, driven by expectations that the Federal Reserve might halt its quantitative tightening in light of the U.S. banking crisis. However, the BTC price has struggled to decisively surpass the $30,000 mark.

Exhaustion in buying at this crucial psychological threshold has resulted in a price correction toward $25,000 over the past week. Notably, this decline has enhanced Bitcoin’s correlation with various traditional financial indicators.

Does this increase the likelihood of Bitcoin continuing its downward trend in Q2? Let’s examine this more closely.

U.S. dollar index’s double bottom

The U.S. dollar index (DXY), which gauges the dollar’s strength against a selection of major foreign currencies, increased by 1.4% to 102.70 in the week ending May 14. This rise marked the dollar’s strongest week since September 2022.

Interestingly, the dollar’s ascent has left behind a potential double bottom pattern, confirmed by two low points near a similar horizontal price level of around 100.75. A double bottom pattern is a bullish reversal formation, indicating that DXY could rise toward 105.85 in the coming months.

DXY weekly price chart. Source: TradingView

DXY’s weekly relative strength index (RSI), which has rebounded after reaching 35—just five points above the oversold threshold—further suggests bullish continuation, which is generally unfavorable for Bitcoin’s price.

The primary reason is the strengthening negative weekly correlation between Bitcoin and DXY, with the coefficient around -50 as of May 14.

<pEarlier in the week, the latest U.S. consumer price index (CPI) report indicated that headline inflation decreased to 4.9% in April compared to the previous month's 5%. However, core inflation rose to 5.5%, indicating that underlying price pressures remain persistent, which has currently tempered expectations for Fed rate cuts.

John Authers from Bloomberg states:

"The likelihood of a ‘pause’ in interest rate hikes next month has now risen to near certainty in futures and swaps markets, having been viewed as an 84% chance before the numbers were released."

A Fed pause is expected to lead to a stabilizing bond market. Historical data suggests that stable interest rates have been beneficial for U.S. Treasuries but detrimental for stocks, with Erin Browne and Emmanuel Sharef of Pimco noting:

"If the Fed pauses at its peak rate for at least six months and the U.S. enters a recession, then history indicates that 12-month returns following the final rate hike could be flat for 10-year U.S. Treasuries, while the S&P 500 could experience a sharp decline."

Consequently, a declining risk appetite would favor the dollar, while heightening the risk of Bitcoin failing to reclaim $30,000 in the near term.

Gold price near key reversal point

The price of gold has increased nearly 15% to over $2,000 an ounce amid the banking crisis. The positive correlation with Bitcoin has also intensified, with its weekly coefficient reading at 0.82 as of May 14.

However, gold’s rally has brought its price to a notorious horizontal resistance level near $2,075. In March 2022, this level played a crucial role in initiating a sharp bearish reversal phase that caused gold’s value to drop by as much as 22%.

XAU/USD weekly price chart. Source: TradingView

Similarly, testing this level as resistance in August 2020 preceded an 18% price decline. If this scenario repeats in 2023, gold’s price could decline toward its 50-week exponential moving average (50-week EMA; the red wave) near $1,850.

Gold’s weekly RSI, hovering around its overbought reading of 70, suggests a similar downside scenario. Due to the precious metal’s positive correlation with Bitcoin, the latter may experience a comparable correction in Q2.

M2 money supply declines

M2 measures cash in circulation plus dollars in bank and money-market accounts. The M2 figure surged by over 40% during the Covid-19 pandemic due to the Fed’s quantitative easing, reaching a peak of $21.84 trillion in January 2022.

It has since decreased to $20.81 trillion, down over 4% from its peak, as of May 2023.

U.S. M2 monthly supply chart. Source: TradingView

A drop of more than 2% in the M2 supply—something that has occurred four times previously—is negative for the stock market, as it has preceded three depressions and one panic.

In essence, the significant decline in M2 could signal new lows for Bitcoin, which often moves in sync with U.S. stock indexes.

Currently, the weekly correlation coefficient between Bitcoin and the Nasdaq-100 index is 0.92.

Bitcoin price "rising wedge"

Bitcoin seems to be trending toward the $15,000-$20,000 price range, depending on its potential breakdown point from what appears to be a rising wedge pattern.

BTC/USD weekly price chart. Source: TradingView

For technical analysts, a rising wedge is a bearish reversal pattern that occurs when the price ascends within a range defined by two contracting, ascending trendlines. It typically resolves after the price breaks below the lower trendline, falling by as much as the maximum height of the wedge.

Related: BTC price bounces at $25.8K lows amid warning over low whale interest

If this BTC price pattern is validated, particularly in light of the aforementioned macro indicators, Bitcoin’s price could decline to as low as $15,000 in 2023, representing a decrease of about 45% from current price levels.

This article does not contain investment advice or recommendations. Every investment and trading decision carries risk, and readers should conduct their own research before making a decision.