Since early 2023, Bitcoin (BTC) has chalked out a classic stairstep bull run, characterized by incremental price increases followed by periods of consolidation that set the stage for the next move higher.
The cryptocurrency’s ongoing price consolidation between $90,000 and $100,000 is the third of the broader bull run from $20,000. The consensus is that it will end in a bull breakout, just as those in mid-2024 and 2023 did.
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However, the following three developments, suggest otherwise.
If there’s one thing that any asset class, not just crypto, typically dislikes, it’s the tightening of fiat liquidity, particularly the global reserve currency, the U.S. Dollar (USD). To the dismay of BTC bulls, the dollar liquidity is tightening due to several factors, as Arthur Hayes, chief investment officer at Maelstrom, noted on X.
Notably, the USD cash balance held in the Treasury General Account (TGA), the U.S. government’s checking account at the Fed, has increased from $623 billion to $800 billion in four weeks, according to data source MacroMicro.
After the U.S. hit its self-imposed debt limit of $36 trillion last month, markets hoped that the Treasury would run down the TGA balance as part of extraordinary measures to keep the government functioning, inadvertently enhancing liquidity in the economy and markets. That’s what the Treasury did during the previous debt ceiling issue of early 2023, spurring increased risk-taking in equity and crypto markets.
“We’re looking at a scenario where key liquidity sources are drying up or being more tightly controlled. This could lead to a slowdown in economic activity, higher borrowing costs, and potentially a more challenging environment for risk assets, including crypto,” Anddy Lian, thought leader and intergovernmental blockchain expert, said on X.
Since President Donald Trump took office on Jan. 20, he has been actively following through on various campaign promises related to tariffs, illegal migrants and international affairs.
But, there is one notable exception: the establishment of a strategic BTC reserve. It was a significant catalyst behind BTC’s surge from $70,000 to over $100,000.
The Trump administration seems to be more cautious, opting to “evaluate” the feasibility of creating such a reserve. It’s a disappointing shift for crypto investors anticipating swift action on this initiative, similar to Trump’s quick responses on other issues.
“Wait, Trump said he would do a $BTC Reserve, not promise to ‘evaluate it.’ Evaluate/Study is what Washington does when they don’t want to do something,” Jim Bianco, president and macro strategist at Bianco Research, LLC, said.
BTC fell from over $100,000 to $96,000 during the overnight trade after Trump’s crypto Czar told CNBC that a top agenda item for his new task force is evaluating the feasibility of a bitcoin reserve.
Finally, those looking at technical charts to gauge the next move might want to pull up the 14-week relative strength index (RSI) on their screens.
That’s because the oscillator has recently diverged bearishly in a move that marked the 2021 top. A bearish RSI divergence contradicts the higher high in prices, signaling a slowdown in the bullish momentum.
The RSI has produced a lower high relative to its December high, diverging bearishly from the continued price uptrend. That’s similar to the 2021 pattern.
The negative setup would be invalidated should the RSI cross above the falling trendline, representing the divergence, indicating a renewed bullish momentum.
