Bitcoin’s resilience amid price drops indicates strengthening support at the $65,000 level.
Despite testing the $65,000 support on June 14, Bitcoin BTC $66,260 hasn’t closed below $66,000 since May 17. While BTC was unable to break above the $72,000 resistance during this four-week period, some events have improved regulatory sentiment and highlighted how little room the U.S. central bank has left to maneuver without triggering inflation. Favorable market conditions and resilience in Bitcoin derivatives metrics indicate that the downside is extremely limited.
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Washington is slowly turning more favorable to crypto
On May 16, U.S. lawmakers passed a Congressional Review Act to explore a Securities and Exchange Commission (SEC) rule that requires listed companies, including banks, to record crypto assets as both assets and liabilities on the balance sheet. According to Senator Cynthia Lummis, this vote was a milestone as it was the first “standalone crypto legislation” passed by Congress.
The resolution was eventually vetoed by President Joe Biden, but the defiance from Democrats demonstrates the “growing number” and “rising influence of crypto participants” in U.S. politics, according to Craig Warmke, a Bitcoin Policy Institute fellow. While Biden’s veto presents a challenge, both chambers of Congress would need a two-thirds majority to overrule it.
The banking sector has an economic incentive to offer custody services for cryptocurrencies, as banks also want their share of the ongoing crypto adoption. Daniel McCabe, chief compliance officer of Flexa, believes that “pro-crypto lobbies and the banking industry could absolutely have an effect.”
Perianne Boring, founder and CEO of the blockchain trade association Digital Chamber, described the Democrats’ support as a “watershed moment” for the Biden administration. Boring claimed that Schumer’s support is turning tides favorably for crypto in Washington. Essentially, Biden will have to assess if it’s worth vetoing the H.J.Res. 109 as it could risk opening an inner conflict in the Democratic party.
The Federal Reserve will soon reverse its tighter monetary policy
The U.S. Federal Reserve is facing mounting pressure to lower interest rates to prevent an economic recession. Recent data shows that inflation remains stubbornly above the Fed’s 2% target, with the headline Consumer Price Index (CPI) at 3.4%. This persistent inflation, combined with a slight uptick in unemployment from 3.9% to 4% in May, indicates that the labor market is beginning to soften.
The U.S. 2-year Treasury yield fell to a 70-day low of 4.69% on June 14, reflecting market concerns about future economic growth. Meanwhile, the S&P 500 reached its highest level ever on June 13, as investors shifted towards equities and other scarce assets to avoid holding cash positions eroded by inflation and low bond returns.
The Federal Reserve’s cautious approach to monetary policy is evident in its recent decision to slow down its quantitative tightening program, a sign of cautious optimism that inflation is stabilizing. However, if the Fed does not adjust its policy soon, it risks exacerbating economic slowdowns as high borrowing costs continue to dampen consumer spending and business investment.
Bitcoin derivatives displayed resilience despite the 8% price drop
Bitcoin’s price traded down 8.5% between June 6 and June 14, testing the $65,000 support level. Despite this drop, its primary derivatives metric showed no significant change. The Bitcoin futures premium reflects the difference between the monthly contracts in derivatives markets and the spot level on regular exchanges. Typically, a 5% to 10% annualized premium (basis) is expected to compensate for the extended settlement period.
On June 14, the Bitcoin 2-month futures premium remained above 10%, which is the threshold for a bullish market. Although less optimistic compared to the prior week, the Bitcoin derivatives market displayed no signs of stress or excessive demand for short (sell) leverage. Considering current regulatory and economic trends, the odds favor the strengthening of the $65,000 support level.
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