Usually, price swings in cryptocurrencies don’t have a precise explanation because of their unregulated nature and the absence of control bodies such as central banks, governments and financial institutions, whose decisions are always key drivers in traditional FX, stock, bond, and commodity markets.

While the above consequently makes trading in digital coins more speculative, even though several economies are enhancing regulations around the financing of blockchain networks, the truth is that traders enjoy cryptos’ detachment from governments and central banks’ sphere of influence.

During the hardest times of the pandemic, the outstanding rally in Bitcoin made some investors view the crypto market as a safe-haven and consider it a better alternative to gold, which surprisingly could not efficiently sustain its upturn. Then, the war in Ukraine brought the crypto market back to the epicentre as international sanctions on Russia and domestic capital controls in Russia incentivized the usage of digital currencies to preserve wealth and liquidity. Governments suggest cryptocurrencies cannot be used to evade sanctions. However, as a Wall Street Journal headline wisely states, if cryptos cannot be used when financial systems are at risk, what is the point of using them, anyway?

The hypothetical safe-haven status, however, broke down in April and the interconnection with the US stock markets came back into play. Strikingly, Bitcoin’s profit taking from the 200-day simple moving average (SMA) at $48,163 overlapped the sell-off in US tech indices, with the 90-day correlation with the tech-led Nasdaq 100 jumping to the highest on record this week. During the same period in 2019, the link with the index was negligible, while it was even muted with other US stock indices.

Apparently, no one can be certain where cryptos are in their market cycle and if the strong correlation will soon disappear. However, what can be argued at the moment is that the strong positive association has popped up at the wrong time.

The reasoning is that US headline CPI inflation clocked in at 8.5% y/y in March, the highest since 1981, while the core measure, which excludes volatile food and energy prices, surged to 6.5% as expected. Although, analysts translated the moderation in monthly inflation readings as a sign that March might mark the peak for inflation, especially as year-on-year comparisons become tougher, the supply disruptions from Ukraine’s war have not been completely embodied in consumer prices yet, and therefore price indices will probably remain hot for an extended period of time. Consequently, the Fed could speed up its monetary tightening plans by delivering an aggressive 50 bps rate hike in May as it is already widely expected to do. But the crucial part of next month’s meeting will be the central bank’s forward guidance. If the war continues and the central bank judges that additional large rate increases will be required in the year ahead to achieve its symmetrical 2.0% inflation mandate in the medium term, then that could raise another red flag for stock markets and therefore for Bitcoin.

Otherwise, if the Fed puts the brakes to the tightening phase in the wake of a weakening economy, the crypto club could march higher instead.

From a technical perspective, the $37,500 – $34,000 zone is the nearest support zone. If it breaks down, the sell-off could stretch towards the critical $30,000 – $28,800 base, which has been intact since the end of 2020.

On the upside, a close above the 50-day SMA, which coincides with the 23.6% Fibonacci retracement of November’s downfall at $42,074, could confirm another bullish correction towards the 38.2% Fibonacci of $47,219 and the 200-day SMA at $48.163. Beyond the latter, the way might clear towards the 50% Fibonacci of $51,377.