The USD is not the only one having a rough day as Bitcoin erased all the weekend gains

There have been lots of people cheering for the Bitcoin rally over the weekend saying that events like the US credit rating downgrade are bullish for the cryptocurrency. Unfortunately for them, Bitcoin is just another risk asset and, given similar drivers, it’s correlated to the stock market.

On the 4 hour chart below, we can see that Bitcoin is bouncing on a major trendline. We are also overextended on the day, so the dip buyers could start piling in around these levels looking for a rally into new all-time highs. The sellers, on the other hand, will want to see the price breaking lower to start targeting a deeper pullback into the 95,000 price area.

I don’t see much downside for the stock market or bitcoin at the moment, but the “easy” gains were made from the bottom as we repriced growth expectations. Now we are near overstretched levels as greed and FOMO are keeping the momentum going. The risks I see ahead is a hawkish Fed that triggers another repricing in interest rates expectatios, which would weigh on bitcoin in the short-term. Economic data and inflation risks will be key.

This article was written by Giuseppe Dellamotta at www.forexlive.com.