Bitcoin (BTC-USD) enjoyed its best one-day gain in almost two months on Wednesday, climbing 5.25%. The move was ignited by a return to “risk-on” assets following the Federal Reserve’s (Fed’s) Federal Open Market Committee meeting and interest rate increase.
As expected, the Fed raised interest rates 0.5% — the highest increase we’ve seen from one meeting in two decades. While the Fed plans to continue raising rates throughout 2022, it won’t be as aggressive as some had feared. The Fed also announced that it will be decreasing its balance sheet starting in June. At first, it will be by as much as $47.5 billion per month, but beginning in September, it will increase to as much as $95 billion per month.
I generally consider Bitcoin to be a risk-on asset. Meaning when investors are looking to take on risk and add exposure to high-beta movers, then Bitcoin, Ethereum (ETH-USD) and other cryptocurrencies are in play. When we’re in a “risk-off” scenario — as has been the case for much of 2022 — then these holdings tend to struggle. Bitcoin is currently down about 18.9% so far in 2022, but it is 42% off its all-time high of $69,000. That is still a lot better than many growth holdings.
Some prominent investors — namely Paul Tudor Jones — has called Bitcoin an inflation hedge. He made those calls in May 2020, given the reaction from global central bankers toward the pandemic. Specifically, the monetary policy from the Fed and other global central banks would warp the money supply and thus, fuel inflation. That has clearly come to fruition over the last several years. While Bitcoin has struggled over the last six months, it’s up more than 300% in the last two years.
So, even though at times Bitcoin can have a correlation with growth stocks and other risk-on assets, it also has its own staying power. For what it’s worth, Jones remains bullish on the cryptocurrency.
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Bitcoin’s rally sent it right to the 21-day moving average on Wednesday. Since losing this measure a month ago, it has been active resistance. So far, that remains true today.
Now the question is, can Bitcoin hold above the 10-day moving average? If it can, Wednesday’s high remains in play. Above that opens the door to the 50-day moving average and the midpoint of the channel. The latter comes into play around $43,500.
On the downside, failure to hold the 10-day could open the door down to last month’s low near $37,500. It will also find channel support there. A break of this area could create a further flush lower, potentially down to the $33,000 to $35,000 area.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
