The current situation on the cryptocurrency market does not inspire optimism. Its causes are to be found in the difficult global situation and the reaction of traditional markets to it. Nevertheless, there is light in the darkness, which makes Bitcoin rebound significantly from a very interesting point.
Fundamentals for starters
So, let’s start with the facts that have been playing a key role in recent days. As we know, Bitcoin, due to its volatility, belongs to the so-called high-risk assets. This is important in the context of institutional adoption. Well, global investors have become accustomed to a situation where when there is uncertainty, or worse, a threat, capital is withdrawn from high-risk assets first.
The threat is definitely the geopolitical situation related to Russia and the possibility of war in the eastern part of Europe. Massive withdrawal of Russian funds from various markets, caused by the fear of sanctions, led to a massive sell-off. This is perfectly reflected in the S&P500 and NASDAQ indices.
The S&P retreated in less than two weeks by 12.35%, to levels quoted in June 2021.
The NASDAQ, on the other hand, over a longer time period of 44 days fell by as much as 18.15%. Also in this way reaching its valuations from June last year.
Exactly the same event took place on the cryptocurrency market. However, the corrections turned out to be deeper. Interestingly, the strong rebound point that occurred simultaneously on the stock and cryptocurrency markets, which took place on January 24, is quite clearly visible. It indicates, by the way, the correlation between such diverse assets.
Interest rate unchanged for now
An additional factor influencing volatility was the US FOMC meeting regarding further monetary policy actions and possible interest rate hikes. It took place on January 26 and triggered high volatility in the market. Bitcoin’s daily move that day was 7.25%, eventually closing the session with a gentle decline of 0.40%. Ethereum scored an even higher volatility of 13.4% and closed on a mere 0.16% gain. The FOMC ultimately kept US interest rates unchanged, but Chairman Jerome Powell indicated on a later conference call that the hike cycle could begin in March, with the value of the hike yet to be determined. Moreover, he also expressed the opinion that the asset market is operating in a space of elevated prices. This kind of comment jerked prices downward. In addition, the potential raising of interest rates has the right to slow down the increases in the long term and this is the fact that causes the most concern.
Bitcoin at new support?
Thus, the situation of BTC looks quite serious. All previous supports have been broken, and the total decline measured from the November ATH was 52.15%. Clearly, lower lows are being scattered on the chart. On January 24, along with the stock market, Bitcoin scored a (previously mentioned and so far the last) solid decline, followed by a strong rebound. The total rebound over the course of the day was 10%.
It is worth zooming out of the chart a bit here, as something interesting appears on it. With the yellow line we have connected the current valuation bottom, with the corrections of June last year, as well as with the local peak of 2019. The straight line that was formed and the multitude of bounces from it, may indicate the next level for which bitcoin will fight to maintain. Moreover, the TD Sequential indicator on the weekly chart continues to hint at a trend reversal.
Nevertheless, we do not expect fireworks in the short term. The market will rather need calming down and perhaps another test of the new support line. In case of upside, price action around the downtrend line, which is still in play, will be key. In the longer term, the cryptocurrency market relies on geopolitical events. Much will depend on them.