May 16 REX Wire Market Outlook

TradFi markets are highly uncertain, making forecasting crypto's next move even harder than usual.

May 16 REX Wire Market Outlook

Uncertainty currently characterizes the markets, with multiple factors pulling in different directions. Recent rises in the stock markets have been driven by tech companies (partly off the back of AI hype), with which crypto broadly correlates. Bitcoin, like the NASDAQ, has maintained its uptrend since the beginning of this year.

Seasonality may now come into play. On average, major stock market indices tend to trade sideways to lower over the May-to-August period (aka "Sell in May and go away").

Perhaps more importantly, let's not forget two other major macro concerns. Firstly, the Fed is trying to engineer job losses and a recession in its fight against inflation. Along with most other major economies, US interest rates have probably now peaked, or are close to peaking, which would be good for stocks and other risk assets. However, with inflation remaining sticky by certain measures, there are no guarantees. The balancing act is to control inflation without destroying the banking sector.

Secondly, the debt ceiling issue is far from being resolved and "X-Date" could be coming down the track fast (possibly by early June). While we hope and expect this will be resolved—because not doing so would be the most colossal act of economic self-harm since the UK voluntarily left the largest trading bloc in the world—markets work on probabilities, and traders are pricing in increased risk.

Crypto Outlook

Bitcoin has been rejected at the $30k mark, after posting a 10-month high in April. $28-30k has been the most important support/resistance area of the past market cycle (the January 2021 pause on the way to $60k; the bottom of the May-June 2021 crash from those highs; the May 2022 consolidation after the double top, before a break lower).

Meanwhile BTC is trading around $27,000, just above the 200-week moving average ($26,100) and well above the 200-day moving average ($21,840), both important lines in the sand.

Chart of key levels for BTC, with 200-week and 200-day moving averages
Bitcoin is currently trading just above the 200-week moving average, which has been a critical level in the past.

With all the uncertainty in the traditional markets, well-known traders are divided on where BTC is heading next. Some are convinced the bottom is in, others that new lows ($10k or even lower) are likely.

In the immediate term, $25,000 is an important level for bitcoin. Breaking that might open the possibility of further downside, with $20,000 being another key level. Below that, holding the $15,000 November bottom would be critical.

To the upside, breaking decisively above resistance at $30k and retesting it as support would confirm the bull market.

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