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A major near-term bounce in the bitcoin (BTC) price could be right around the corner.
That’s because bitcoin is nearing a test of a key support zone that could well form the floor for another solid rally.
Bitcoin has been ebbing low in an uncharacteristically subdued July.
Its spot price was last changing hands across major exchanges at around $29,300, close to 8% lower versus the yearly highs it hit earlier in the month around $31,800, and down just under 4% for the month.
The world’s largest cryptocurrency by market capitalization has been holding above its 50-Day Moving Average (DMA) (also at $29,300) this week.
But short-term technicals suggest further minor near-term downside might be on the cards in wake of bitcoin’s breakout below its prior multi-week range earlier in the week.
However, if bitcoin does drop into the $28,000s, it would run into a key long-term support zone around $28,500.
This is where the late May high, 100DMA and, most importantly, the uptrend for 2023 all come into play.
Technicians have thus marked this zone out as a great risk-reward area to add to long positions.
So, the technicals all look very bullish for bitcoin right now.
What about the fundamentals?
Do they support the argument for a bounce in the $28,000s, and a recovery to fresh yearly highs.
Probably.
Let’s examine why.
Bitcoin Spot ETF Optimism
It’s going to be a long time before the US Securities and Exchange Commission (SEC) issues decisions on the waves of spot bitcoin Exchange Traded Fund (ETF) applications made by Wall Street giants last month.
That wave of applications, at the time, helped propel bitcoin from the mid-$20,000s to above $30,000.
A lack of updates could see some of this initial enthusiasm continue to price out.
But its undeniable that BlackRock, the world’s largest asset manager and a hugely influential force in US financial markets, and other big names like Fidelity wanting to get involved in bitcoin is a game changer with regards to institutional adoption.
The SEC has up until now rejected all spot bitcoin ETF applications, but analysts are bullish that this time will be different, thanks to BlackRock and co.’s clout and their proposed surveillance and information-sharing agreements.
With spot ETFs seemingly just around the corner, it makes complete sense for the bitcoin price to remain at higher levels that it was in, say, May and early June.
Fed Tightening Nears an End, as US Economy Remains Strong
US economic data this week strongly pointed towards a so-called “goldilocks scenario” for the US economy where inflation continues to fall towards the Fed’s target, but the US economy continues to remain robust.
The Fed lifted interest rates by 25 bps earlier this week, the 11th hike in 12 meetings, but analysts are split on whether any further hikes are coming.
All said, we are increasingly tilted towards a scenario where the Fed’s tightening cycle looks to be very close/have already ended, but the US economy avoids a recession, which is very positive for risk assets like US stocks.
Given the historic positive correlation between US stocks and bitcoin, if the equity market rally keeps going, this could give BTC some major tailwinds.
More generally, the narrative that interest rates are close to peaking/have already peaked and liquidity conditions aren’t going to be so tight from here on out should also benefit crypto more broadly.
But Safe Haven Demand to Ebb?
The only thing to note is that bitcoin saw a powerful rally in March amid safe-haven demand due to bank crisis concerns, and a goldilocks economic scenario eases fears that bank troubles could return.
Any investors who bought bitcoin as a safe haven against a potential bank crisis might be inclined to take profits.
All said, there is no guarantee that bitcoin will find support if it hits the mid-$28,000s.
In fact, it would be quite typical of the market to break to the downside of the 2023 uptrend just to spite (and stop out) all the bulls proclaiming that a major bounce is coming.
But there is no doubt that, with macro much less of a headwind now versus during 2022, and with institutional adoption optimism growing, things are looking bright for bitcoin ahead of the 2024 halving.
For what its worth, the last two halvings have both proceeded massive run-ups in the bitcoin price to fresh all-time highs.
Assuming 2024 is no different, we could be looking at a bitcoin price in the $100,000s by this time next year.
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