Bitcoin - after the arrest what comes next?

Today’s arrests come just six months after U.S investigators tracked 75 Bitcoins paid as ransom to hackers that took down the largest fuel pipeline in the U.S. It further proves that investigators can “follow the money” through the cryptocurrency ecosystem.

What does it mean for Bitcoin?

The arrests are positive for Bitcoin in the medium term as it brings further confidence to the digital asset space for legitimate investors. In the short term, it is probably a net negative as holders of Bitcoin from illegal sources try to make “a run for the hills.”

Where to next for Bitcoin?

The recent correction in Bitcoin commenced in late November and coincided with the arrival of more hawkish central bank policy, including higher interest rates and liquidity withdrawal.

Regarding what the liquidity withdrawal equates to, some striking figures from Morgan Stanley. G4 central bank balance sheets are expected to shrink by US$2 trillion between May 2022 to May 2023, which is coincidentally the current market cap of the global crypto space.

Hawkish central bank monetary policy has also impacted technology stocks, as witnessed by the recent 18% sell-off in the tech-heavy Nasdaq from its late November high.

The link between Bitcoin and the Nasdaq link is cryptocurrencies provide access to digital technology, and some high-profile stocks in the Nasdaq hold Bitcoin on their balance sheet.

In May last year, a correction in the Nasdaq also weighed on Bitcoin. Based on these observations of moving in tandem, it’s no surprise that the correlation between Bitcoin and the Nasdaq has returned to the highs seen in March 2020. Bitcoin has become a high octane version of the Nasdaq in many ways.

This means if we know where the Nasdaq is going, we have a pretty good idea of where Bitcoin is going.

With this in mind, there appears to be room for both to correct higher in the short term.

Providing Bitcoin can hold above support at $39,500 allow for the rally to extend towards the 200 day moving average at $49,200.

Source Tradingview. The figures stated areas of February 9 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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