Bitcoin extends drop to $39K as cryptocurrency market risk (Cryptocurrency:BTC-USD)

Bitcoin (BTC-USD) and some other major cryptocurrencies Monday afternoon are trading back in positive territory as U.S. stocks catch a bid in a choppy session.

As all three major U.S. stock market indices are rebounding to breakeven levels, bitcoin (BTC-USD +0.3%) is rising to $40.5K, while ether (ETH-USD -1.7%) is still drifting down to $2.99K. On a technical basis, while Bitcoin has been trading in a six-month cyclical decline, it’s “not close to an oversold reading,” and $35K support probably won’t hold, said John Roque, technical analyst at 22V Research, in a note to clients Sunday, as reported by Bloomberg. “We continue to believe that it will get to the $30,000 level,” he highlighted.

It appears that investors are shifting their focus to safe haven assets such as Gold (XAUUSD:CUR +0.4%) in a backdrop of tighter monetary policy and geopolitical tensions. Gold is approaching $2K per ounce again, recently changing hands around $110 below its all-time high of $2,089 in Aug. 2020.

Over the past year, it’s clear that Gold (XAUUSD:CUR) +12% has been outpacing Bitcoin (BTC-USD) -30%, the stock market (SP500) +8%, and headline consumer price inflation +8.5% Y/Y, implying that the precious metal is acting as an efficient store of value amid economic uncertainty and recession risks. In an effort to tame inflationary pressures, the Federal Reserve is pivoting to hawkish policy, with expectations that the Fed will hike the policy rate aggressively throughout this year and next. In addition, the 50-day correlation coefficient for Bitcoin (BTC-USD) and Gold is at its lowest since 2018, recently standing at 0.4, Bloomberg reported. “It could well be that as Bitcoin is tested in a high inflation, rising rate environment for the first time, investors are choosing tradition over a new frontier,” Jeffrey Halley, senior market analyst at Oanda Asia-Pacific Pte, told Bloomberg. “Gold has been an inflation hedge for millennia.”

The global crypto market cap is also rebounding from earlier on Monday’s session, rising 0.3% to $1.88T at the time of this writing.

On April 14, SA contributor Dividend Seeker said the correlation between stocks and cryptos have strengthened, which “limits the effectiveness” of Bitcoin as a hedge during times of uncertainty.