Bitcoin headed for first monthly loss in six months

Bitcoin (BTC) has regained some poise since last Thursday, but the cryptocurrency still appears on track for its first monthly loss since December.

The leading cryptocurrency by market value traded near $27,800 at press time, a 7.5% rise from lows under $25,900 registered last week. However, prices were still down about 5% for the month, the first monthly decline of the year (assuming, this loss is held through Wednesday's UTC close). Bitcoin has put in a positive performance in January, March and April and ended February on a flat note.

Against ether (ETH), bitcoin looked set for a monthly decline of nearly 7%, CoinDesk data show.

Bitcoin's dour monthly performance comes as bond traders have reinstated bets that the Federal Reserve (Fed) will keep interest rates elevated for longer in response to sticky inflation and a resilient labor market. Earlier, interest rate traders expected the Fed funds rate, the benchmark borrowing cost, to fall to 4.5% or lower by the end of 2023 from the current 5%. However, the market no longer foresees the Fed implementing rate cuts this year.

The renewed hawkish Fed bets have given a boost to the U.S. dollar this month, lifting the greenback by 2.7% against a basket of fiat currencies, including the euro. Bitcoin tends to move in the opposite direction of the dollar.

Capital has been leaving the crypto market since early last year. The trend has persevered this month, with the stablecoin market capitalization shrinking to a 20-month low of $130 billion. Stablecoins are digital assets with values pegged to an external reference like the U.S. dollar and have been widely used to fund purchases of other cryptocurrencies over the past three years.

"We can assume that the liquidity wave of lower inflation has now run its course and the market needs a new driver and theme to lift prices higher," Markus Thielen, head of research and strategy at crypto services provider Matrixport, said. "The tech sector tends to be correlated with BTC, but the former has found new life with the AI and Chat GPT revolution, which is not benefiting BTC yet."

Bitcoin has decoupled from Wall Street's technology-heavy index Nasdaq, which has risen nearly 8% this month.

Griffin Ardern, a volatility trader from crypto asset management firm Blofin, said the continued high-interest rate environment would keep the odds against bitcoin bulls.

"In a high-interest rate environment, high risk-free returns such as money market funds are more attractive to investors, which means the lack of liquidity in the crypto market continues," Ardern said.

Dick Lo, the founder and CEO of quant-driven crypto trading firm TDX, said, bitcoin's 4% rise on Sunday was a relief rally triggered by U.S. leaders announcing a provision deal to lift the $31.4 trillion debt limit hit in January and further gains may be hard to come by.

"The rebound we saw on Sunday night / Monday morning was very much a relief rally on the back of the U.S. debt ceiling package. The market will likely return its focus to the possibility of another 25 basis points interest rate hike at the June FOMC meeting and the potential liquidity drain as the Treasury needs to sell at least $500 billion in bills in the short-term to refill its cash position, which will weigh on risk assets," Lo said.

We see strong resistance on BTC at $28,500 with initial support seen at $27,350, followed by a potential retest of $26,200," Lo added.