Bearish sentiment in the cryptocurrency market remains at extreme levels. Bitcoin has been edging lower for seven consecutive weeks, which confirms its strong correlation with movements in the US stock market.
The Dow Jones Industrial Average notched eight losing weeks in a row, which was the longest negative trend since 1932, when the Great Depression took a heavy toll on the country. The S&P 500 and NASDAQ posted losses for seven straight weeks - the longest losing streak since the 2001 dot-com bubble.
All three indexes lost about 3% last week. Investors prefer to stay away from the stock market amid economic growth concerns. According to Goldman Sachs, the probability of a recession within the next two years is about 35%. Morgan Stanley analysts see the odds of a recession as roughly 40%.
Federal Reserve Chairman Jerome Powell spoke on Tuesday at The Future of Everything Festival hosted by WSJ. Powell noted that the Fed would like to see "clear and convincing evidence that inflation pressures are abating and inflation is coming down".
Only then will the central bank consider turning away from its aggressive rate hike path. Powell also reiterated that the Fed is committed to 50 basis point rate increases at its June and July meetings, adding that no one should question the Fed's resolve in combating inflation, even if this affects employment. It is worth noting that it's still unclear how far the Fed is willing to go with its rate hike plan. If inflation does not show a steady decline in the foreseeable future, the Federal Reserve may push its federal funds rate to 4% in the next 2-15 months instead of the previously expected 3%.
Considering the Fed's strong determination to combat inflation, many experts project a significant growth potential for the US dollar, which will increase against the backdrop of an active rate hike cycle and surging US Treasuries. These are the right conditions for the traditional dollar to become a more attractive investment option than the cryptocurrency sector.
It should also be noted that the Fed's aggressive rate hike cycle will cause a long-term downtrend in the US stock market. Taking its already established correlation with the cryptocurrency market, the BTC and Ethereum may follow this bearish path.
Another negative factor for the digital currency industry is the devastating collapse of UST and the LUNA token, which has gained increased authorities' attention to stablecoins. US Treasury Secretary Janet Yellen said stablecoin issuers should be subject to the same rules as banks, urging Congress to pass legislation to create a regulatory framework for stablecoins.
Naturally, the increased oversight of the stablecoin sector could put an end to anonymity and start the process of a gradual decay of the entire cryptocurrency industry. That being said, we recommend shorting BTC/USD with the target of $25,000.