Bitcoin Faces Hurdles as Liquidity Tightens and Regulatory Uncertainty Looms

Bitcoin (BTC) has been on a consistent upward trajectory since early 2023, marked by periodic consolidations and price surges. The current phase, with Bitcoin trading between $90,000 and $100,000, is part of the ongoing bull market that began when the asset was valued around $20,000. Typically, these consolidation phases have set the stage for further bullish movement, but recent developments indicate that Bitcoin might face substantial challenges ahead.

Concerns Over Tightening USD Liquidity

One of the key concerns for Bitcoin’s continued bullish run is the tightening of USD liquidity. As noted by Arthur Hayes, Chief Investment Officer at Maelstrom, a decrease in the availability of U.S. dollar liquidity is unfavorable for risk assets like Bitcoin. In the past month, the U.S. Treasury General Account (TGA) balance surged by $177 billion, from $623 billion to $800 billion.

This increase follows the U.S. government hitting its $36 trillion debt ceiling, and markets had hoped that the Treasury would release funds from the TGA to boost liquidity. Such a move had previously spurred risk-taking in both equity and crypto markets. However, with liquidity tightening, there is a real risk that economic activity could slow down, raising borrowing costs and putting pressure on assets like Bitcoin.

Anddy Lian, a blockchain expert, warned that the drying up of liquidity could hurt the broader market, creating a more difficult environment for risk assets, including cryptocurrencies.

Trump Administration’s Cautious Approach to Bitcoin Reserve

In addition to the liquidity concerns, Bitcoin’s price may also be impacted by the Trump administration’s delay in establishing a strategic Bitcoin reserve. Initially, the proposal to create such a reserve was seen as a major catalyst for Bitcoin’s rise from $70,000 to over $100,000.

However, recent remarks from Trump’s crypto czar have revealed that the administration is taking a more cautious approach. Instead of moving quickly, they have stated that they will “evaluate” the feasibility of creating a Bitcoin reserve, which has disappointed many crypto investors who were hoping for more immediate action.

Jim Bianco, president of Bianco Research, expressed frustration, saying that “evaluate” is a term often used when Washington is reluctant to move forward with an initiative. This shift in tone sent Bitcoin’s price down from over $100,000 to $96,000 during overnight trading, signaling that the market was wary of any further delays on the strategic reserve front.

Technical Indicators Flash Bearish Signals

Bitcoin’s technical charts also suggest that its bullish momentum may be weakening. The 14-week relative strength index (RSI) has displayed a bearish divergence, a pattern reminiscent of the 2021 price peak. This divergence shows that the RSI has created a lower high compared to its December reading, signaling that the upward momentum may be fading despite Bitcoin’s rising price.

Should the RSI fail to break above its falling trendline, the bearish divergence may become more pronounced, indicating a potential price correction. However, if Bitcoin breaks above the trendline, it could reignite the bullish trend and invalidate the bearish signal.

Conclusion: Bitcoin Faces Uncertain Road Ahead

Bitcoin’s recent price consolidation between $90,000 and $100,000 has fueled expectations of a breakout, but key factors suggest the cryptocurrency may face significant hurdles. Tightening liquidity, a delayed strategic Bitcoin reserve, and bearish technical indicators are all factors that could dampen Bitcoin’s upward momentum. Investors and traders will need to keep a close eye on these developments to determine whether Bitcoin can continue its bull run or if a period of consolidation or correction is on the horizon.