Bitcoin’s slide below $ 40,000 comes on the Fed’s signal of a possible fourth interest rate hike in 2022

Bitcoin’s slide below $ 40,000 comes on the Fed’s signal of a possible fourth interest rate hike in 2022

Global financial markets, stocks and cryptocurrencies took a hit on January 10 after rumors circulated that the Federal Reserve could raise interest rates four times in 2022 and sparked a sell-off and sent the benchmark 10-year Treasury yield briefly above 1.8%.

Data from Cointelegraph Markets Pro and TradingView shows that a massive selloff broke Bitcoin (BTC) support near $ 42,000, which resulted in a drop to $ 39,660 before traders stepped in to buy the perceived drop.

1-day chart of the BTC / USDT pair. Source: TradingView

Here’s what analysts are saying about this latest BTC pullback and what could possibly happen next, as analysts look at the impact of the end of the Federal Reserve’s easy money policies on risk assets.

Shrinking money supply is bad for Bitcoin

The Fed’s shifting monetary policy is creating significant setbacks for risk assets, but this was anticipated by analysts at Delphi Digital, who pointed out that the headwinds facing BTC and the cryptocurrency market have more to do with “Tighter liquidity conditions and higher market volatility” than with increases in interest rates.

According to Delphi Digital, “The macro tailwinds that helped propel BTC and crypto assets to new highs over the past 12 to 18 months have changed course,” as highlighted in the graph below showing that the global supply of monetary liquidity (M2) peaked around March 2021 and has been in decline ever since.

Bitcoin's slide below $ 40,000 comes on the Fed's signal of a possible fourth interest rate hike in 2022
Bitcoin price vs. global supply of monetary liquidity. Source: Delphi Digital

The spike in the supply of monetary liquidity occurred around the same time that Bitcoin set a new all-time high in early 2021 and was followed by a decline below $ 30,000 over the next several months.

Despite BTC’s resurgence in late 2021, which once again set a new high of $ 68,789 in November, the continued decline in the supply of currency liquidity has taken its toll on the market, who has been exasperated that the Fed shared its plan to speed up its timeline for raising interest rates. .

The Delphi Digital team said:

“The withdrawal of excess liquidity and accommodative monetary conditions is a structural obstacle that we have highlighted in recent months, which now seems to be reaching a critical point.”

Talks about higher interest rates have also breathed new life into the US dollar, which, according to Delphi Digital, “It does not favor assets like BTC, which tends to move inversely to the USD.”

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Bitcoin's slide below $ 40,000 comes on the Fed's signal of a possible fourth interest rate hike in 2022
BTC / USD index against DXY (inverted). Source: Delphi Digital

Delphi Digital said:

“We continue to emphasize how important the US dollar is in determining the direction of global markets, especially assets tied to the currency devaluation narrative.”

“A good buying opportunity”

Analysis of the structure of the current chart for BTC was offered by the analyst and Twitter user pseudonym ‘Resolute’, who published the following graph highlighting the 42.5% decline in the price of BTC from its highs in November.

Bitcoin's slide below $ 40,000 comes on the Fed's signal of a possible fourth interest rate hike in 2022
2-day chart of the BTC / USDT pair. Source: TradingView

Resolute said:

“Possibly a double bottom from the September 2020 low, after falling back in the fourth quarter. It is currently trading below the 2d 200 EMA, which has historically been a good buying opportunity. “

Resolute’s observation that this can be a good accumulation area was shared by cryptocurrency trader and Cointelegraph contributor Michaël van de Poppe, who posted the following tweet indicating a preference to open a long position rather than a short position in the current market.

The total cryptocurrency market capitalization currently stands at $ 1.92 trillion and Bitcoin’s dominance index is 40.9%.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and business move involves risk, you should do your own research when making a decision.

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