Bitcoin price is trading consistently above key support levels and may extend its bullish trend in the coming days. Cryptocurrencies reacted positively to the current macroeconomic conditions, despite the US Federal Reserve (Fed) promising to hike interest rates.
At the time of writing, bitcoin price is trading at $20,700 with a loss of 3% in today’s trading session and a sideways move over the past week. This period has been the first time profitable for digital assets over traditional assets, such as equities.
Reasons why the price of bitcoin will remain bullish
investment firm cumberland believe that Bitcoin price is forming the foundation for a more significant uptrend. The firm claims that this bullish price action will be supported by macroeconomic factors and a “growing drumbeat of progress in digital asset adoption”.
Cumberland believes that the US dollar, as measured by the DXY Index, shows weakness on the first of these factors. The currency has been rallying over the past few months. This bullish price action negatively affected the price of bitcoin and the value of other assets, including equities and gold.
A crash in the DXY Index would give bitcoin some room to run in Q4 2022. Over the past two years, the cryptocurrency saw new all-time highs in November and December. This period is one of the fastest for digital assets in its history.
Cumberland added the following on DXY’s price action and the reason for its weakness:
This rally appears to be tops, possibly a result of expectations that the Fed will reverse by mid-2023. In other words, the 5.5% market-implied terminal rate is much lower when short-term rates are locked at 0% than when the short-term rates hover around 0%.
The current status quo will remain in place unless there is an unexpected macro-event, such as a higher-than-expected inflation print. Another source of uncertainty, the issue of the Russo-Ukraine war with supply chains, reached an “early state of equilibrium”.
US politics may favor crypto
In the short term, there is growing uncertainty about US politics. Tomorrow the country will elect a new Congress. The outcome of this election will have significant consequences for the crypto market and the global economy. In that sense, the price of bitcoin is likely higher.
A Republican controlling Congress could favor the price of bitcoin and digital assets in the crypto industry. In contrast, Democrats are seen as hostile or less willing to legislate in favor of the nascent industry. On a potential Republican victory, Cumberland wrote:
In the event that Republicans manage to take back control of the legislative branch of government, it does not appear that they enter an era of fiscal austerity. Instead, we should expect a shift towards lower taxes, higher incentives and easier regulation. Similarly, we should expect a less hostile environment for crypto (…) in Washington.