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⚡Market Turbulence Ahead🚁

Croxroad

17 Apr 2024 — 4 min read

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🦢 Decoding Bitcoin's Price Movements

Bitcoin (BTC) has experienced a notable downturn, sliding up to 15% since the weekend, leaving traders and analysts contemplating the potential bottom of the market and the timing of its occurrence. Despite briefly challenging the $61,000 mark, BTC/USD failed to sustain a significant rebound and is currently hovering around $62,000 as of April 16. Analyst Mark Cullen, utilizing the Elliott Wave method, suggests that Bitcoin may be gearing up for another downward move, targeting around $59,000. This level would mark the lowest point for BTC since late February, presenting a substantial drawdown from recent all-time highs.

Concerns deepen as Bitcoin risks losing a key moving average, the 10-week simple moving average (SMA), currently positioned at $64,130. Analyst Matthew Hyland emphasizes the importance of the upcoming weekly close, indicating that full candles below the 10-week SMA haven't occurred since mid-2023. The weekly close will be pivotal in determining the longevity of the current pullback and its implications for market sentiment and future price action.

Contributing to the cautious outlook, Binh Dang, a contributor to on-chain analytics platform CryptoQuant, suggests that BTC/USD could remain in a lower range for an extended period before retesting its highs. Analyzing the adjusted cumulative value days destroyed (CVDD) metric, Dang predicts a prolonged reaccumulation phase, with a potential retreat to just under $40,000 representing the "worst-case" scenario. Despite geopolitical tensions contributing to the downward pressure on Bitcoin, analysts remain vigilant, monitoring key technical indicators and market dynamics for further insights into the cryptocurrency's trajectory.

👮‍♂️ Bitcoin's Pre-Halving Slide Mirrors Dollar's Strength

The United States dollar is eying its “best 5-day run” since February 2023, while Bitcoin (BTC) has dropped over that time as interest rates are expected to remain high and the cryptocurrency sees volatility leading up to its April 20 halving.

The dollar’s strengthening is likely driven by expectations of sustained higher interest rates, according to trading resource The Kobeissi Letter. “Less than a month ago, markets were anticipating the Fed to start cutting in June. Higher for longer is now the base case,” The Kobeissi Letter wrote in an April 17 post.

Higher interest rates typically encourage foreign investors to take advantage of greater returns on bonds and term deposits, increasing the demand for the dollar. The Bloomberg Dollar Spot Index (BBDXY) — which tracks the performance of a basket of 10 leading global currencies versus the U.S. dollar — has climbed by approximately 2% over the last 5 trading days, its largest increase in 14 months. According to the BBDXY, the U.S. dollar index score stands at 106.34, an increase from 105.28 five days prior, which indicates that it has strengthened against the other nine currencies included in the index, including the euro, pound, and Japanese yen.

Meanwhile, Bitcoin has seen a 9% price decrease over the past five days to $63,936, per CoinMarketCap data. While not always correlated, Bitcoin and the dollar have shown an inverse relationship over the years. Reuters reported on April 16 that Federal Reserve Chair Jerome Powell said the country’s inflation rate — currently 3.5% — is not moving toward the central bank’s 2% goal, meaning it’s “likely to take longer than expected to achieve that confidence.”

Meanwhile, trader Justin Spittler warned in an April 16 post that each time the U.S. dollar has reached “overbought levels,” it has been swiftly followed by a significant correction. Bitcoin, which is seen as a more volatile asset, usually sees spikes in demand when the dollar weakens. However, another factor comes into play with the Bitcoin halving scheduled just three days away, slated for April 20 — a process that reduces the amount of BTC that can be mined per block by 50%. Although this is halving, crypto investors are showing greater confidence in riskier crypto assets compared to the 2020 halving event, according to Bitcoin’s dominance chart.

Three days before the 2020 halving, Bitcoin dominance — a ratio of Bitcoin’s market cap compared to the cumulative market cap of all other cryptocurrencies — stood 15% higher than its current level. The U.S. dollar was 6% weaker at the time compared to its current strength. Bitcoin’s dominance is currently 52%, according to CoinStats. Meanwhile, the five-day rise in the U.S. dollar has also seen the crypto market sentiment tracking Crypto Fear and Greed Index drop by 11 points since April 10.

🧮 Calculating Crypto Income

As a U.S. taxpayer, you're likely accustomed to having federal and state income taxes withheld from your paychecks. Similarly, any crypto income you earn, such as from mining, staking, or rewards, is subject to these income taxes. However, these taxes are typically not automatically deducted. When you report your earnings, you'll owe taxes based on your applicable income tax bracket. It's important to note that significant earnings from crypto activities could potentially push you into a higher tax bracket, resulting in a higher tax rate on some of your income.