Bitcoin and the broader crypto market have collapsed as the stock market has retreated since the US Federal Reserve’s FOMC meeting in December showed the regulator was determined to cut its balance sheet and raise interest rates in 2022 .
The Fed is now tightening its bond purchases and has told the market that it will hike rates shortly after the March cut ends.
But the market is waiting for signs from the Fed as to what it will do to its nearly $ 9 trillion balance sheet once the rate hike is completed. The minutes showed that officials were considering a shrinking balance sheet along with a hike in exchange rates as another avenue to moderate politics.
The Dow Jones Industrial Average ended the day down 392.54 points (-1.07%) to 36,407.11. The S&P 500 fell 1.94% to 4,700.58. Technology-focused Nasdaq posted its largest one-day decline since February, dropping 3.34% to 15,100.17.
Megacap’s tech stocks fell, with Netflix and Alphabet losing at least 4% each. Meta Platforms and Microsoft each lost more than 3% and Apple 2.7%.
Surrender pushes Bitcoin price below $ 44k
As the stock market corrected, the price of BTC fell below $ 44,000, sparking a series of massive liquidations. At press time, over $ 700 million has been liquidated in the last 24 hours.
Total amount of liquidation. Source: Coinglass
Data from TradingView shows that after hovering around $ 46,000 support for the past few days, Bitcoin was hit by a sell-off that dragged the price to an intraday low of $ 42,798.
BTC / USDT 1 hour chart. Source: TradingView
Given the current situation, many believe that the Fed will begin raising interest rates in March, “which means that the balance sheet cut could start before the summer”.
Here’s what analysts say about the recent bitcoin price drop, and what to expect in the coming weeks when the Fed’s loose monetary policy ends and interest rates begin to rise.
It was a harbinger of a pullback on January 5th show by Analyst Rekt Capital, with the graphic below highlighting “many similarities between the current BTC range and May 2021”.
“For both, BTC consolidated within two bull market EMAs (i.e. 21-week EMA and 50-week EMA in blue). If BTC repeats history, a surrender event could occur, with BTC momentarily deviating below the blue 50 EMA.
1W BTC / USD chart. Source: Twitter
BTC needs to get back $ 46,000
Analyst Michaël van de Poppe has been taking a closer look at price developments since May. post a graph depicting BTC’s performance during the recent sharp market decline.
“And the scenario of a drop below $ 46,000 is playing out. The question is, will Bitcoin hold back here, accumulate liquidity and break back above $ 46,000? Then the floor is already in. “
BTC / USDT 4-hour chart. Source: Twitter
Unless the price returns above $ 46,000, the market could be bearish for an extended period of time with BTC potentially falling back into the lower $ 30,000 range.
“Hidden bullish divergence” in the RSI
The current market scenario was briefly addressed in the following graphic by options trader Nunya Bizniz.
“BTC Monthly: Falling below the current RSI is a bad thing.”
BTC price vs. RSI. Source: Twitter
As analyst Matthew Hyland noted on Jan. 5, Bitcoin’s Relative Strength Index (RSI) forms a “hidden bullish divergence” on the monthly timeframe – and if so, the market result.
“Bitcoin’s monthly RSI is currently below the May-July 2021 correction,” Matthew Hyland Disclosure, referring to Bitcoin’s summer correction after miners’ volatility in May.
Bitcoin RSI. Source: Twitter
While that period brought BTC / USD to $ 30,000 and the monthly RSI is around 60, the price is currently higher but the RSI is lower – only 58.95. The index is only lower in September 2020, with BTC trading at around $ 10,000.
Along with the one-month low, the monthly RSI also prints a pattern that was previously only observed once, according to trader TechDev.
RSI is traditionally used to determine how overbought or oversold an asset is at a given price, and it has served Bitcoin particularly well in the past few months.
In mid-October, for example, TechDev found with an RSI of 68 that that level was still far from where Bitcoin hit its long-term high.
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