Bitcoin Rangebound as Market Ignores Good News in 'Textbook Late Cycle Behavior'

In brief

Bitcoin briefly rose to $118,640 before falling 2.6% on Wednesday, failing to retest its record high of $122,800.
QCP Capital said the muted price response to positive headlines signaled potential late-cycle behavior.
Analysts warned that a short squeeze in the U.S. dollar and excessive leverage in altcoins could trigger broader market volatility.

Bitcoin continues to be stuck within a narrow trading range, tentatively below all-time highs, and it’s beginning to appear like the old Hollywood movie, Groundhog Day.

Bitcoin leaped to $118,640 on Wednesday before a swift 2.58% decline to $115,700. The top crypto is now back trading near its intraday high.

“New highs remain a strong possibility over the medium term,” Singapore-based trading firm QCP Capital wrote in a note on Wednesday. Still, Bitcoin’s failure to revisit its all-time highs above $122,800, witnessed earlier this month, flies in the face of “continued institutional inflows and favourable regulatory developments,” it wrote.

“Caution is warranted,” QCP wrote, adding that “price action has failed to respond meaningfully to a string of positive headlines.”

Short-term exhaustion amid a price barely treading water, despite positive catalysts, could be a “textbook” sign of “late-cycle behavior,” it wrote.

Several positive headlines have emerged in recent days, including the U.S. Securities and Exchange Commission’s approval of in-kind redemptions for Bitcoin and Ethereum ETFs on Wednesday.

“The crypto market is at a critical juncture, Bitfinex analysts wrote in a recent report, adding that excess leverage in altcoins could leave the broader crypto market “vulnerable to sharp deleveraging events.”

Even the global market is vulnerable with risks from “overcrowded positioning” in U.S. dollar and USD/JPY shorts, QCP wrote.

“This week’s rally in the dollar is highly unusual,” Robin Brooks, a senior fellow in the Global Economy and Development program at the Brookings Institution, tweeted Thursday.

“A classic short squeeze that happens when positioning gets out of whack with reality.” He expects the recent move to end the “lazy Dollar bearish narratives.”

The rising value of the dollar index (DXY) often reduces Bitcoin’s notional value. If the U.S. dollar continues to strengthen due to short covering, it also creates an environment for safer alternatives like T-bills or bonds to flourish.

Catalysts in the form of the President’s Working Group on Digital Asset Markets may offer clearer guidance for the industry following its exhaustive 160-page report on Wednesday.

Yet until further progress is made, many large players remain sidelined.