What explains Bitcoin’s 10% drop and where the price might go now

After reaching a high to $40,000 on Wednesday (4) after the decision of the Federal Reserve (the central bank of the United States) to increase the interest rate by 0.5 percentage point, Bitcoin (BTC) started a strong fall since Thursday, which reached 10%, losing the level of US$ 36 thousand, a scenario that continues this Friday.

The move comes amid a new rush by investors to reduce exposure to assets considered risky, and follows the behavior of US stock markets.

The reasons for the drop remain linked to fears that the monetary tightening policy of the US and other central banks in the world will affect the performance of riskier assets.

“Bitcoin’s drop in the last 24 hours followed the fall of all ‘risk’ assets shortly after the Bank of England’s statement, which predicts recession and double-digit inflation for the next few years”, explains Bernardo Schucman, vice president senior at CleanSpark’s Digital Currency Division.

At 2:15 pm (Brasilia time) this Friday, Bitcoin was down 2.6% in the 24-hour period, quoted at $36,102.

The start of the losses, however, seems to have been motivated by a specific speech by Jerome Powell, chairman of the Fed, on Wednesday. In a press conference after the decision of the Federal Open Market Committee (FOMC), he mentioned that the Fed is willing to tolerate a recession to reduce inflation. “We will not hesitate to do so,” he said.

This speech took place after he stated that there would be no acceleration in the rise in interest rates and that this is not something “actively considered”, which came to cheer the markets, since it was widely expected that at the next meeting there would be an increase of 0 .75 percentage points, creating a great deal of confusion – and volatility – in investors’ interpretation of the next steps.

“There has been a complete loss of confidence on Wall Street,” Oanda Americas senior market analyst Edward Moya told CoinDesk. “Wednesday’s rally that lifted equities, cryptos and all risk assets came to a halt with investors starting to have doubts about the global economic recovery.”

According to Moya, Powell may have exaggerated in telegraphing the Fed’s reluctance to raise rates at a faster pace. “He has shown the markets that he may not be ready to fully fight inflation,” he said, adding that the $33K support will be key for Bitcoin and that volatility similar to the past two days is likely to repeat. “We shouldn’t be surprised if we continue to see these types of swings in the coming days.”

Already, Schucman, warns of a still volatile movement in the coming days: “The price of Bitcoin will behave very similarly to all risk assets, since the asset is included in this category by investors and should rise again after this moment. uncertainty of the markets in relation to the supply of gas in Europe and what are the consequences of this in the post-war world economy”.

Where is Bitcoin going?

Experts point out that it is difficult to predict the movement of cryptos at this moment, but they remain optimistic about the medium and long term. “It is very difficult to predict market volatilities, especially in the short term. What we see is that, regardless of the markets, the acceptance and understanding of the crypto market only increases in Brazil and in the world, which is a great sign for the medium and long term”, evaluates Ricardo Dantas, CO-CEO of Foxbit.

For Alexandre Ludolf, investment director at QR Asset Management, the move at the moment is “a capitulation of investors to the challenging scenario for growth and inflation that we are experiencing”. “But I believe that the efficiencies generated by decentralized technologies and all the crypto adoption we’ve seen around the world make this sector one of the best bets for innovation and technology in the medium term,” he says.

It is worth mentioning that in the last editions of the Cripto+ program, InfoMoneyanalyst Vinícius Terranova had already been warning that Bitcoin’s charts indicated a complicated scenario, with investors showing little excitement and leaving room for sellers to gain strength.

According to the technical analysis (see more in the video above), Bitcoin has now lost important supports and if it loses the current level between $35,000 and $36,000, it can test new levels below $30,000, up to $30,000. $28,000, a level close to the minimum reached in 2021.

In view of this, experts consulted by the InfoMoney point out that, for investors focused on the long term, drops like this can open up good opportunities, always remembering that new purchases in the market should be made gradually, during the downward movement, and not all at once.

“From time to time systems tend to purge the excesses, always trying to find a new balance. In complex and decentralized systems, as in the case of Bitcoin, some isolated triggers can trigger this purge, and when this happens, volatility is usually very high, and large sudden drops can occur”, says Fred Biscaia, Co-CEO of Insignia.

“We have seen this happen several times in the history of Bitcoin, and large windows of opportunity often open up at these times,” he continues, assessing that the market has not entered a bear market.

“The world economic scenario is one of rising prices and high public and private indebtedness. On the other, we have Web 3.0 and the rapidly expanding crypto world, with new applications being launched and innovative projects being proposed. Of course, we will always have the speculative side, moments of stress and high volatility, but in the medium term a bull market is still sustained”, he concludes.

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