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James Carter

May 3, 2023

Can Bitcoin Set New Records? Snap its Recent Run of Ugly May Returns?

The price of Bitcoin is already down about 2%, and BTC/USD was last traded in the $28,600s on big exchanges.

The cryptocurrency is still up about 73% for the year.

Still, traders are worried that history could repeat itself and Bitcoin could lose a big chunk of its value between now & the end of the month.

Can Bitcoin Set New Records?

There is no doubt that macro risks could have a big effect on the price of Bitcoin.

On Wednesday, the US Federal Reserve will announce its latest policy decision. Rates are expected to go up for the tenth time in a row by 25 basis points, putting them in the range of 5.0-5.25%. Fed Chair Jerome Powell is also expected to push back against money markets expectations that the Fed will cut rates later this year.

For now, the fact that inflation is still high and the US job market is still strong are good reasons to keep tightening.

There is a chance that if upcoming US data on jobs and inflation are good enough, it could make the market less likely to expect rate cuts later this year. This could cause the US dollar and US yields to rise, which could hurt Bitcoin.

Also, US liquidity is still going down, even though it went up in March when the Fed stepped in to help the banking sector with liquidity. This could be another positive economic factor for Bitcoin.

Bank Crisis and Concerns About the US Default to the Rescue?

Even though Bitcoin is still holding above its 50-Day Moving Average in the $28,200s, which shows that the market’s near-term bullish momentum hasn’t died yet, the risk of a drop below support in the $26,500-$27,000 range remains high.

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If this support zone breaks, the key long-term support turned resistance area around $25,250-400 could be retested.

But one important macroeconomic factor could save Bitcoin and maybe even send it to new all-time highs in the $30,000s.

A regional bank in trouble Last week, at the end of the week, the FDIC took over the First Republic and quickly sold it to JP Morgan through an auction.

The failure of First Republic came after the failure of three other small US bank in March.

The KBW the regional banking index fell 5.5% on Tuesday. This was the biggest drop in a single day since early to mid-March when worries about a bank crisis started to grow. The index hit its lowest level since late 2020.

Investors are worried that more area banks are about to fail and that the US financial system as a whole is in danger.

In March, buyers who were worried about the bank crisis bought Bitcoin as a safe haven. They wanted an alternative form of money that wasn’t controlled by a central bank.

Can Bitcoin Set New Records? Snap its Recent Run of Ugly May Returns?

In fact, Bitcoin was up more than 2% on Tuesday, with some experts pointing to a safe-haven bid from banks.

Even if US regulators are able to stop a full-blown bank crisis, recent events have greatly increased the risk of a recession. This is because banks are becoming more cautious, which makes them less likely to give money. This puts more pressure on the Fed not to tighten the financial system too much.

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This should also be good for Bitcoin in the long run as a whole.

Another thing that could help the price of Bitcoin in May is the growing chance that the US government will not pay its debts.

Right now, US lawmakers are fighting over how to raise the US debt limit.

If they don’t do this before the US treasury runs out of cash, which could happen as soon as June, the US government could end up not paying some of its debts. This is because the US government usually pays off old debt by issuing new debt.

We’ve been on this merry-go-round dozens of times before, and until now, a deal has always been made at the last minute to stop a default.

But as the deadlines to raise the debt ceiling gets closer, and the chance of default seems to be going up, money could move into Bitcoin as a safe haven.

This is because a default would destroy the authority of the US government and its currency, the USA dollar, which is the reserve currency of the world.

Gold, the oldest kind of money, and Bitcoin, which many people call the new digital gold, are likely to attract investors looking for options to hard currency.