Has Bitcoin Finally Bottomed Out on Treasury Move?

Bitcoin rose to multi-month highs, aided by a combination of government policy factors, raising the question of whether it will consolidate gains or retrace in the coming days.

The Market-Moving Factors

• Bitcoin jumped 22% in less than a week after the US Treasury sought to lower long-term borrowing costs and Trump pushed for legislation to regulate the crypto sector.
• The bump higher forced a short squeeze on Friday, which could mean profit-taking or consolidation in the coming days.
• Markets are increasingly concerned that the Fed could find it harder to raise rates, which could support bitcoin through the latter part of the year.

Trump, Bessent Push Crypto Higher

Bitcoin posted its best performance in three years last week, gaining 22% and rising above $77K heading into the weekend. The move aligned with a broader move higher across the crypto space, with other coins rising and crypto-linked stocks buoyed as well. The move was explained by a one-two punch: first, the US Treasury's increase in buying long-dated bonds on Wednesday, and second, a Presidential push to pass the Clarity Act on Thursday. The drop in bond yields made alternative investments like bitcoin more attractive, along with a weaker dollar. The move was also aided by technical factors, as the sharp jump caused a massive short squeeze, with around $2.7 billion in short positions being liquidated. This later factor opens the possibility of a correction, at least in the short term, as profit-taking at the start of the week could cause a temporary blip.

In pressing Congress to pass the Clarity Act, which would clarify regulation and facilitate crypto trading, US President Donald Trump suggested that the government could buy more cryptocurrencies. The legislation has passed the House but has stalled in the Senate amid a shrinking legislative calendar ahead of the midterm elections, as Senators increasingly focus on their reelection campaigns. Trump's comments drew attention to bitcoin bulls such as Cathie Wood, who has predicted the cryptocurrency will reach $1.5 million by 2030, citing government purchases for its Strategic Bitcoin Reserve. The passage of the Clarity Act would be an important step in that direction and could support the crypto space if there are signs of further progress in the coming days. On the other hand, substantial Democratic and Republican opposition remains in the upper house to modifications that would enhance protections against public officials profiting from crypto trading.

Can The Trend Continue?

Whether a post-surge bout of profit-taking is likely to cause a reversal or present a buy-the-dip opportunity may depend on hard-to-predict factors, such as whether there is sufficient political momentum to pass the Clarity Act. However, analysts are focusing more on the Treasury market as a potential long-term catalyst. Bitcoin is often billed as a hedge against dollar fragility, particularly as US debt continues to skyrocket. Some worry that the Treasury's move suggests officials are concerned about rising long-duration borrowing costs. That could hamper efforts to regulate the economy, such as raising interest rates to curb higher inflation. The odds of a rate hike have remained fairly steady through the surge higher in bitcoin, but if upcoming data puts pressure on the FOMC to hold off on further tightening, this could provide further support for the cryptospace.

Bitcoin Bottoms Out, For Now

Although bitcoin has bottomed out for now below 60K, only a breakout back above 83K could potentially confirm it. This is the neckline of a potential double bottom that might have formed near $60K, with a false break pushing prices down to $57700. If the said resistance, which aligns with the upper VWAP line, gives way to bulls, it could open the door to $106K in the medium term, respecting the measured move projection. On the other hand, if the price moves back under the middle line at $69520, the chances of consolidation will increase, exposing $63K (high momentum candle open) and the June bottom.

Source: SpreadEx, Bitcoin Weekly Chart