Bitcoin Bullish Again?

Bitcoin returned to positive territory on Monday after initially continuing its downward trend from the previous week.

According to Coin Metrics, bitcoin fell to $32,982.11 on Monday, its lowest level since July, but the largest cryptocurrency by market cap was up 5.6 percent in afternoon trading, to $37,183.25, as broader equities reversed course and ended the day higher. Earlier in the day, the Dow dropped as much as 1,115 points, and the S&P 500 briefly entered correction territory.

According to Coin Metrics, ether has dropped to as low as $2,176.41, its lowest level since July. It last increased by 1.1 percent to $2,444.85. Bitcoin and ether are about 45% and 49% off their all-time highs, respectively.

Cryptocurrencies have been moving in lockstep with stocks, which have been falling since the beginning of the year and recently had their worst week since March 2020. As the Federal Reserve tightens monetary policy, investors have been selling risk assets such as technology stocks.

“It’s possible that macroeconomic concerns, such as the Fed’s reaction to inflation rates, have facilitated more de-risking activity overall,” said Juthica Chou, Kraken’s head of OTC options trading. “The recent price drop, combined with high volatility, may lead to additional selling as participants seek to reduce risk.”

Investors are also weighing the impact of additional regulation on the cryptocurrency market. Last week, Russia’s central bank proposed a ban on cryptocurrency use and mining.

According to Vijay Ayyar, Luno’s vice president of corporate development and international expansion, bitcoin is likely to test the $30,000-$32,000 range given current market sentiment. If the cryptocurrency remains above $30,000 for at least one week, he believes a base will form before the market moves higher. However, given the lack of confidence across the board, he believes it will take some time for the market to turn bullish.

Several other analysts have stated that the next level of support for the cryptocurrency to test is $30,000, which they see as the next level of support for the cryptocurrency to test. However, 22V Research analyst John Roque believes bitcoin could fall even further. He has also set $30,000 as a target, but he has noted that the median historical bear market for bitcoin is down 78 percent.

“A 78 percent drop from the bitcoin high of nearly $69,000 implies a potential downside figure of about $15,000,” he wrote in a note on Monday. “I think it’s safe to say that no bitcoin bull has that figure in their model.” To be sure, neither do we… But we think it’s worth keeping in our back pocket just in case.”

Investors are also concerned about rising inflation. Bitcoin supporters have long claimed that the digital currency is a hedge against inflation, but that theory has not held up for many newer investors. With institutional interest pouring into bitcoin last year, there are more short-term investors in the crypto market than ever before, valuing bitcoin like a tech stock. Analysts are concerned that a more hawkish Fed will take the wind out of the crypto market’s sails.

“Looking ahead,” said Leah Wald, CEO of digital asset investment manager Valkyrie Funds, “our most immediate concern is how equities markets respond to this week’s Fed meeting, especially after having just experienced their worst week since the global onset of Covid.”

“A stock market consolidation would result in a risk-on environment where traders are more willing to take on additional risk assets like bitcoin,” she added, “because digital assets have become increasingly correlated to equities as more companies continue to add bitcoin to their balance sheets.” Volatility is likely to be a feature of bitcoin for the foreseeable future, as traders assess market sentiment in the aftermath of this week’s Fed meeting.”