Bitcoin falls to six-week low amid risk-off sentiment

Bitcoin (BTC) is again on the losing end as the ever-increasing list of macro uncertainties weighs over traditional risk assets.

At press time, the number one cryptocurrency traded near $38,450, the lowest since March 15 and down nearly 3.5% in 24-hours, according to CoinDesk data.

The global equity markets are a sea of red, with European stocks hovering at one-month lows and the futures tied to the S&P 500 nursing a 0.7% drop. Commodities also faced heavy losses, ending their recent resilience. Gold, a traditional safe haven and inflation hedge, fell nearly 1% to $1,917 per ounce.

The U.S. dollar is the only one to climb, proving its dominance as the safe-haven asset. The dollar index, which tracks the greenback's value against majors, topped 101 for the first time since March 2020. The Chinese yuan fell to 6.553 against the dollar, hitting the lowest since November, a sign markets are concerned about a slowdown in the world's second-largest economy.

The renewed coronavirus outbreak in Beijing has triggered fears of a hard lockdown, which will likely exacerbate the global supply chain issues, bolstering the already elevated inflation worldwide. The Chinese authorities have leaned heavily on lockdowns to control the virus, as Shanghai's recent experience suggests.

China's coronavirus woes couldn't have come at a worse time, as fears of rapid interest rate hikes by the Federal Reserve have already dented animal spirits in asset markets.

"It's more of the same for markets, but with a decidedly bearish sentiment slant for tradefi and crypto," Illan Solot, a partner at the Tagus Capital Multi-Strategy Fund, said in a Telegram chat. "I don't remember this level of bearishness amongst contacts and Twitter, even back on cycle lows in January. The contrarian in me wonders if this is not a good time to push against the narrative."

Indeed, sentiment appears quite bearish, with crypto Twitter worried about an impending flag breakdown on bitcoin's technical chart, a bearish pattern that would supposedly open doors for $20,000.

While extreme fear is often observed at market bottoms, it may be too early to catch the falling knife as long as the macro uncertainty persists.

"We could potentially see BTC drift as low as $33,000 if macro sentiment further weakens," Matthew Dibb, COO and co-founder of Stack Funds, said. "We have observed consistent selling in line with the downside of the Nasdaq during Friday's trade. We expect this to continue in the near term and trade tightly with equities."

On Friday, bitcoin fell below $40,000 as the tech-heavy Nasdaq index slipped over 2% on Fed rate hike fears.

Laurent Kssis, managing director and head of Europe at crypto exchange-traded fund firm Hashdex, said, "I still see general downward pressure couple with intermittence short pushes that produce very little and get beaten down due to long liquidations. (around $25 million in BTC and $8 million in ether today). I remain technically bearish on BTC short term."

Bitcoin's daily chart shows the cryptocurrency's drop under $40,000 has exposed the trendline connecting Jan. 24 and Feb. 24 lows. As of writing, the trendline support stood at $37,420.

While near-term prospects look bleak, the worst may be behind us regarding the inflation scare and market pricing for Fed rate hikes, according to Tagus Funds' Solot. Last week, Fed Chair Jerome Powell outlined his most hawkish approach to controlling inflation, putting at least two or more half percentage-point (50 basis point) interest-rate increases while calling the labor market overheated.

"We are not far from peak inflation hysteria, especially after the additional frontloading of Fed tightening last week," Solot said. "There should be a lot of demand destruction still in store for the cycle with higher commodities and mortgage rates, and the pass-through of a +5% DXY appreciation this year should alleviate some pressure."

The jury is out on where bitcoin would bottom out once the hysteria fades.