BTC price action is almost guaranteed to benefit from extra central bank liquidity, but the journey higher is fraught with difficulties, QCP Capital says.
hodlers should view the central banks of China and Japan as well as the United States as BTC/USD battles “major” resistance.
That was the opinion of trading firm QCP Capital, which warned in its latest crypto market research, “The Crypto Circular,” that Bitcoin faces risks far beyond the Federal Reserve.
Bitcoin “Most Direct Global Liquidity Proxy”
After surviving the latest deluge of macroeconomic data from the US, Bitcoin still falls just below $25,000 as bulls run out.
For QCP Capital, there is now reason to believe that risk factors for price action will not only come from the Fed – but China and Japan.
Market participants now have to contend with issues such as China’s consumer price index (CPI) as well as the US equivalent, along with the policy changes of Japan’s central bank.
“While the jury is out on the value of BTC as an inflation hedge, it cannot be denied that it is the most direct global liquidity proxy, as it is not tied to any central bank or nation,” the research argues.
Bitcoin is sensitive to global liquidity, and when central banks inject it, that’s an incentive for growth in itself. That argument is already popular, with others also looking at how “liquidity junkie” Bitcoin will navigate changes in central bank liquidity this year.
“And while we focused on USD liquidity – from the Fed’s QT and Reserve Balance, we missed the massive liquidity injection from the Bank of Japan (BOJ) and People’s Bank of China (PBOC) over the past 3 months,” QCP continues . .
“Contrary to consensus, central banks have added a net $1 trillion of liquidity since the market bottom in October 2022, with the PBOC and BOJ the biggest contributors.”
QCP refers to the dichotomy between US policy and China and Japan – quantitative tightening (QT) versus quantitative easing (QE). Regardless of what the Fed does, extra liquidity in one place is almost guaranteed to trickle down into risky assets like crypto.
“Therefore, such a large injection of liquidity will undoubtedly find its way into crypto, even despite what appear to be the current US administration’s best efforts to prevent it,” it says.
Against a net $1 trillion of liquidity injections, the Fed reduced its balance sheet to its lowest levels since September 2021.
“What this means is that in addition to US data and guidance from the Fed now, which ultimately still has the highest beta for market moves, we also need to be aware of liquidity injections from the BOJ and PBOC,” QCP writes.
“Any reversal of liquidity from these 2 sources will remove the underlying support that BTC has seen over the past month.”
Research reiterates ‘double top’ warning.
Going forward, however, liquidity fans face tremendous resistance when it comes to Bitcoin, with order books showing sellers waiting closer to $30,000 in a pile.
Related: Can Bitcoin Price Hold $24K As Equity Correlation Hits Lowest Since 2021?
$25,000 is already causing enough trouble, QCP warned, acknowledging that a rejection at that level would mean resistance remains in check from mid-2022.
As reported by Cointelegraph, the issue is also being watched by popular trader and analyst Rekt Capital.
“BTC – A possible double top is forming against the August 2022 correction high, and a May 2022 reaction low at 25,300. Above that we have the biggest resistance at 28,800–30,000, which is the neckline of the head and shoulders,” the research confirms.
BTC/USD was trading around $23,700 at the time of writing, near one-week lows, according to data from Cointelegraph Markets Pro and TradingView.