Bitcoin nosedives as US Fed turns hawkish

Cryptocurrencies

- Bitcoin, other cryptos should trade independently of mainstream financial markets

- But they have correlated with other risk-sensitive assets

- Cryptocurrencies correlated with stocks, especially tech stocks

- Bitcoin fell below $38k recently

- And recovered back to $39k level

- BTC whales bought at the dip

- Large whales bought 40,000BTC worth $1.6 bn in 2 days

Mumbai: As bitcoin dipped below $40,000 and stayed there for a long time, it sent shock waves among the crypto investors. Bitcoin fell below $40,000 for the first time since early February, extending a nearly month-long drop. It has dropped roughly 40 per cent since its February peak of over $64,000.

The fear of Federal Reserve is back into play. As the Fed moves aggressively to tighten monetary policy, bitcoin prices start taking the hit, rocking the cryptocurrency boat.

Tighter monetary policy and higher interest rates will increase the cost of borrowing and are likely to dampen investor sentiment on assets that are viewed as riskier, like cryptos.

Theoretically, bitcoin and other cryptos should trade independently of mainstream financial markets, but they have proved correlated with other risk-sensitive assets like stocks - especially tech stocks - and were moving lower in sync with equities.

However, in spite of this, bitcoin's on-chain metrics, if you refer to the data available, are contrastingly bullish. The percentage of bitcoin's supply that has not moved in one year is at an all-time-high as a matter of fact.

Talking to Bizz Buzz, Raj Kapoor, Chief Advisor, Acryptoverse, a blockchain and crypto advisory firm, says: "If we closely analyse the data, we can observe that bitcoin is being distributed from those who see it as a risk-on asset, to long-term holders who have strong conviction in bitcoin's long-term potential."

Of late, bitcoin seems to shadow the tech-focused Nasdaq stocks, with most scheduled to report quarterly results this week. When tech giants outperform, they can sometimes pull the rest of the market higher with them, but the reverse is also true, he added.

Bitcoin has dipped below $40,000 and stayed there for a long time amid the rising pessimistic sentiments including poor growth outlook and rising inflation, which may lead to monetary tightening.

Sumit Khare, Co-Founder, BitsAir Exchange, said: "The continued receptivity from regulators around the world is evidence of its likely long-term stronghold and the bright outlook for the wider crypto industry."

The Central African Republic has now legally adopted the biggest cryptocurrency as its legal tender, thus becoming the second nation in the world to do so.

This comes as the Central Bank of Cuba is set to issue licences for virtual asset service providers both within the nation and to foreign companies and individuals.

Even as BTC dipped below the $40,000 mark, the continued receptivity from regulators around the world is evidence of its likely long-term stronghold and the bright outlook for the wider crypto industry.

Fuelling more opportunities, Dragonfly Capital even launched its third $650 million fund, furthering the already vibrant ecosystem and strengthening growth and innovation, injecting greater optimism in the sector, says a study by CoinDCX Research Team.

Bitcoin recovered back to $39,000 levels after sliding below $38,000 recently. BTC whales made the most of this opportunity and bought at the dip. In fact, on-chain data indicated that large whales bought 40,000 bitcoins worth nearly $1.6 billion in just under two days.

"The daily trend for BTC has formed a triangle pattern. An immediate support for BTC is expected at $37,600. Meanwhile, Central African Republic (CAR) became the second country, after El Salvador, to adopt bitcoin as a legal tender. This is yet another big leap towards global

crypto acceptance and adoption," says a report by WazirX Trade Desk.

The precipitous drop could be attributed to the prolonged liquidation. As treasury yields have recently risen, traders have been pushed out of riskier assets. Bitcoin has lost roughly 40 per cent of its value since reaching a high of over $64,000 in February, compared to the highs seen at the start of the year. The main driver of bitcoin's weakness is rising yields,

Kshitij Purohit, Lead of Commodities and Currencies, CapitalVia, said that the flight from riskier assets, predictably, added to the pressure on the crypto markets, pushing bitcoin below $40,000 for the first time.

Meanwhile, the technical picture appears negative, since bitcoin has recently returned to levels last seen in August 2021. BTC is currently trading around $38,900, indicating a downward trend. If the bearish trend continues, the price might fall to $37,000, he added. The market may gather bearish momentum if it falls below $37,200, which is the crucial weekly support. The RSI has just entered oversold.

If we closely analyse the data, we can observe that bitcoin is being distributed from those who see it as a risk-on asset, to long-term holders who have strong conviction in bitcoin's long-term potential

- Raj Kapoor, Chief Advisor at Acryptoverse