The nomination of Kevin Warsh, a perceived policy hawk, to the Federal Reserve Board has introduced a layer of uncertainty, with markets interpreting it as a potential shift toward more restrictive monetary policy. Such a stance typically weighs on risk-sensitive assets like Bitcoin. However, market expectations have become nuanced, with rate forecasts now implying a greater probability of short-term easing while expecting tighter long-term discipline.
From an on-chain perspective, Bitcoin is flashing signs of extreme undervaluation. The two-year rolling Market-Value-to-Realized-Value (MVRV) z-score has declined to its lowest reading on record, a historical indicator of significant undervaluation. The Bitwise Cryptoasset Sentiment Index has also flashed a contrarian buying signal, with sentiment as bearish as during major liquidation events.
Despite these signals, Galaxy Digital's Head of Research, Alex Thorn, warns of further downside. In a research note, Thorn highlighted Bitcoin's weak price action and a lack of bullish catalysts, suggesting a "significant chance" the cryptocurrency could retrace toward key historical support levels. The primary target is the "realized price"—the average cost base of all circulating Bitcoin—which currently sits around $56,000. The 200-week moving average, at approximately $58,000, is another critical historical support level.
Thorn noted that while profit-taking by long-term holders has begun to abate, suggesting a potential bottom is near, accumulation from large buyers remains limited. He also downplayed the near-term impact of potential U.S. crypto market structure legislation, stating its odds of passage have decreased and that any positive momentum would "more likely benefit altcoins than BTC."
Technically, a large gap in CME Bitcoin futures prices suggests potential for a near-term retracement to higher levels. Furthermore, some traditional macro signals, like strength in precious metals and improving regional manufacturing surveys, could point to a more resilient economic backdrop that has historically aligned with stronger crypto performance.
