Financial markets, securities and cryptocurrency global, including Bitcoin, experienced massive volatility on January 10 after rumors that the Federal Reserve could raise interest rates four times by 2022, triggering a sell-off and sending Treasury yields to 10 year to above 1.8% in a short time.
Data from TradingView shows that the sell-off has caused BTC broke the $42,000 support, causing the price to drop to $39,660 before buyers entered the market.
Price chart BTC – 1 day | Source: TradingView
Here's what analysts are saying about the drop BTC the latest and what might happen next while watching how the Fed's end to loose monetary policy affects risk assets.
Shrinking Money Supply Is a Bad Signal for Bitcoin Price
The changing monetary policy of Fed are creating significant challenges for risky assets. However, according to analysts at Delphi Digital, the difficulties that BTC and the market cryptocurrency faced was related to “tight liquidity conditions and heightened market volatility” than to interest rate hikes.
According to Delphi Digital, “the macro trends that helped propel BTC and crypto assets to new highs over the past 12-18 months have been reversed.” The analysts also charted that the global M2 supply peaked near March 2021 and has been decreasing since then.
BTC Price and Global M2 Supply | Source: Delphi Digital
M2 supply peaked at the same time Bitcoin established an ATH in early 2021 followed by a correction below $30,000.
Despite BTC's late-2021 resurgence, which once again set new highs at $68,789 in November, the continued decline in M2 supply took its toll on the market, which prompted the Fed to move forward. plan to speed up the rate hike.
Delphi Digital says:
“The move away from excess liquidity and favorable monetary conditions is the headwind we have highlighted in recent months. Right now it looks like this trend is approaching.”
The discussion about raising interest rates also breathed new life into the USD. Delphi Digital has also noted that this event is not beneficial for assets like BTC, which tend to move inversely to the USD.
“We continue to emphasize the importance of the US dollar in determining the direction of global markets, especially for asset classes tied to the narrative of currency weakness.”
BTC/USD and DXY (Reverse) Indicator | Source: Delphi Digital
Good buying opportunity into the
Analyst Resolute has posted an analytical chart of the current structure for BTC, highlighting the 42.5% drop from the November peak.
“The market formed a double bottom from the September 2020 low. BTC is currently trading below the 200 EMA on the 2-day chart, which used to be a good buying opportunity.”
BTC Price Chart – 2 Days | Source: TradingView
Resolute's comment was echoed by trader Michaël van de Poppe, who posted a tweet suggesting he would prefer going long over short.
The overall crypto market capitalization stands at 1.192 trillion USD and Bitcoin dominance is 40.9%.