Bitcoin Slips Under $42K as Mounting Macro Risks, Dollar Strength Overshadow LFG Purchases

Investors seeking clues to bitcoin’s recent failure despite continued accumulation of the Luna Foundation Guard, (LFG), may wish to examine the ever-growing list macro risks and what’s going on in traditional markets.

According to CoinDesk data, the world’s biggest cryptocurrency dropped below $42,000 during European trading hours. This was the lowest level since March 22, and extends the fall from the March high of $48,240. LFG added $173,000,000 in bitcoin to its wallet this weekend, increasing its total holdings by almost 40,000 BTC.

According to Noelle Acheson (head of market insights at Genesis Global Trading), the weakness could be due to traditional investors not following LFG’s lead considering the many economic and political uncertainties stalking risk assets. Genesis Global Trading is owned by CoinDesk parent Digital Currency Group.

Acheson stated that while the DXY strength is a part of the overall picture, there’s more market uncertainty, macro concern, and a greater focus on what rates will do in a Telegram chat.

According to TradingView data, the dollar index, which measures the value of the greenback against a basket major currencies, reached two-year highs over 100 today. This brings the year-to date gain to 4.3%. Global reserve currency rose 1.5% this month.

Kevin Kelly, global head of macro strategy and co-founder at Delphi Digital, believes that the greenback and bitcoin are in a very inverse relationship. Kelly stated that 2017 was one of the worst years in the history of the dollar and that it coincided with a large run in bitcoin in March during an analyst call. “We saw bitcoin rise in the early 2021.” This was due to the dollar weakness.

Blofin volatility trader Griffin Ardern stated that when the DXY reaches highs and climbs further, it often indicates further declines of other assets, such as the stock market or cryptocurrencies.

This is especially true now that the dollar rally is being fuelled by hawkish Federal Reserve officers, who call for an increase in interest rates and a greater balance sheet runoff to reduce inflation. For risk assets such as bitcoin, tightening policy is considered to be bearish.

A Reuters poll indicates that the Fed will likely increase rates by 50 basis point during the May and Juni meetings. This follows a 25 basis point increase in borrowing costs last month. The U.S. 10-year Treasury yield is now at 2.7%, a new record.

Concern is also raised by the cryptocurrency’s vulnerability to equity markets. As liquidity is decreasing, big tech is experiencing difficulties. This is due to markets pricing tighter by the Fed. Acheson also noted that there are more reports of tech companies closing down, laying off employees, and/or having dwindling term sheet.

Tech stocks could be in for a major correction, according to Arthur Hayes (co-founder and former CEO at BitMEX, a crypto spot and derivatives exchange).

Inflation is becoming more entrenched around the world with the ongoing Russia-Ukraine conflict, which leaves virtually no chance for central banks to resort to liquidity-pumping strategies anytime soon.

If this isn’t enough, markets may be kept on edge by Marine Le Pen’s win in France’s presidential election.

European stock futures fell today after polls revealed that Le Pen and Macron were the top vote-getters in Sunday’s first round. 27% and 24% respectively. Some investors are concerned that Macron’s narrow lead could be closed by Le Pen consolidating anti-Macron votes prior to the final round on April 24.

“Adding to the effect of war in Europe, the results of yesterday’s voting in France have been released, which could – depending upon how the next round on April 24 goes – cause more currency turmoil,” Acheson said.

“And with so much uncertainty, especially considering crypto assets’ history volatility, macro investors are choosing not to invest until they have enough signals to make directional bets with conviction,” Noelle said.

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