Bitcoin Faces Resistance as Liquidity Strains, Regulatory Delays, and Bearish Technicals Weigh on Momentum
Since the start of 2023, Bitcoin (BTC) has followed a typical bull market pattern, with price gains followed by consolidation periods that have set the stage for the next move upward. The current price range between $90,000 and $100,000 marks the third consolidation phase in Bitcoin’s broader bull run, which began from $20,000. However, the anticipated breakout from this range is becoming increasingly uncertain due to three critical developments.
Straining U.S. Dollar Liquidity
A major obstacle to Bitcoin’s rally is the tightening of liquidity in the U.S. dollar market, which has broader implications for risk assets like cryptocurrency. As noted by Arthur Hayes, Chief Investment Officer at Maelstrom, tightening fiat liquidity, especially in the U.S. dollar, typically creates headwinds for assets like Bitcoin. A key factor contributing to this is the significant increase in the U.S. Treasury General Account (TGA), which rose by $177 billion, bringing the balance from $623 billion to $800 billion in just a month.
The increase in TGA balance comes after the U.S. hit its $36 trillion debt ceiling, and markets had hoped that the Treasury would reduce this balance to enhance liquidity. This action was seen in the past during debt ceiling crises, with the Treasury using the excess funds to increase liquidity and spur market activity. However, with liquidity tightening, the impact on risk assets, including Bitcoin, may be negative, as reduced liquidity could lead to slower economic growth and higher borrowing costs.
Trump Administration Slows Strategic Bitcoin Reserve Progress
Another key factor weighing on Bitcoin’s price is the delay in the Trump administration’s plans for a strategic Bitcoin reserve, a move that helped drive Bitcoin’s price from $70,000 to over $100,000. Recent statements from White House officials have suggested that instead of moving forward with the reserve, the administration has decided to “evaluate” the feasibility of such an initiative.
This shift in approach has been disappointing for many investors who were hoping for swift action. According to Jim Bianco, President of Bianco Research, the term “evaluate” is often used when there is little intention to move forward with the project, and this has led to frustration in the market. In response, Bitcoin’s price fell from over $100,000 to $96,000 during overnight trading as traders recalibrated expectations regarding the reserve.
Technical Divergence Points to Weakening Momentum
On the technical side, Bitcoin’s price momentum also appears to be weakening. The 14-week relative strength index (RSI) has shown a bearish divergence, similar to the one observed in 2021 before a major price pullback. Despite rising prices, the RSI has produced a lower high, signaling that upward momentum is starting to slow. This bearish divergence suggests that Bitcoin’s price could face downward pressure in the near future.
If the RSI continues to diverge from price action and fails to break above its trendline, it could confirm a slowdown in bullish momentum. However, if Bitcoin manages to break the trendline, it could invalidate the bearish signal and trigger renewed upward momentum.
Conclusion: Bitcoin Faces a Critical Crossroad
Bitcoin’s price consolidation between $90,000 and $100,000 has many market participants anticipating a breakout, but the road ahead is far from clear. Tightening liquidity, delays in the creation of a strategic Bitcoin reserve, and weakening technical indicators all suggest that Bitcoin’s next move may be more uncertain than previously expected. Investors will need to monitor these factors closely, as they could have a significant impact on Bitcoin’s short- to medium-term price direction.
