Experts explained the reasons for the current decline in the digital currency market and told how the situation will change in the near future
On August 20, Bitcoin updated the local price low at $20.7 thousand. As of August 21, 13:55 Moscow time, the first cryptocurrency is trading at $21.3 thousand. Experts analyzed the market situation and explained what dynamics to expect next week.
Week from 15 to 20 August for the buyers turned out to be unsuccessful. Bitcoin fell 13.5% against the US dollar. The dollar rally triggered a flight from risky assets. And since the cryptocurrency is one of the most risky assets, the percentage drop is many times higher than the dynamics of major currencies and American indices.
The latest CFTC data showed that US dollar net long positions rose to $13.37 billion in the week ended August 16, from $12.97 billion the previous week. Net long dollar positions increased for the first time in four weeks.
Bitcoin in August 2022
On Monday (August 15), buyers shifted the maximum by $25.2 thousand, from which fixing on long positions began. Within a few hours, the BTC/USDt pair returned to the level of $23.1 thousand. On the first day of the week, a bearish pinbar formed (a daily candle with a long upper shadow).
On Tuesday (August 16), the price was spinning around $23.4 thousand. Buyers did not even try to win back losses due to the strengthening of the dollar and the appearance of weakness on the NYSE and NASDAQ.
Since mid-July, the bitcoin rate has risen following the US indices, which were recovering against the backdrop of lowering fears about a recession in the US. Investors played the scenario in which the Fed would abandon the aggressive rate hike and provide the economy with a soft landing. They apparently dropped this scenario due to the energy crisis in Europe and the renewed dollar rally.
On Wednesday (August 17), the BTC/USDt pair came under pressure. Sellers at $23.6K pulled the trendline off the $18.9K low (July 13, 2022), forcing buyers to retreat further south.
On Friday (August 19), futures for US stock indices opened lower. Investors continue to weigh how much the Federal Reserve will have to raise interest rates to curb the highest inflation in 42 years. Accordingly, the US stock market has already opened lower, catching up with futures.
The dollar is gaining despite signs of easing inflationary pressures in the US, while rising US Treasury yields confirm the Fed’s tight expectations and continue to act as a tailwind. The yield on 10-year Treasury bonds rose to 2.97% (+3.12%). The dollar index rose to 108.10 points against a high of 109.29 (July 14).
Louis Federal Reserve President James Bullard is leaning towards another massive 75 percentage point rate hike at the Fed meeting in September. Richmond Fed President Tom Barkin said the Fed would “do everything possible” to bring inflation back to the 2% target.
After a technical breakdown, the price drop accelerated to $20.7 thousand. The last time such values were observed was on July 26. Traditionally, bitcoin pulled the altcoin market with it. Weekly losses of ether amounted to 16%.
The decline was sharp as the corrective pattern from $17.6K had four rising highs. There was a bearish divergence between the last highs. Everyone who bought bitcoin on growth began to actively close positions. For some, margin long positions were closed by stop-out (forced liquidation of positions due to insufficient margin collateral).
The fall of BTC/USDt stopped at a trend line that originates from the low of $17.6k (June 18, 2022). The price rebounded to $21.3 thousand. The rebound is too weak to continue the growth.
As part of the correction, we can consider raising the price to $21.9-22 thousand. Then the situation will depend on the opening of markets on Monday for futures for indices and the US dollar. If the pressure on the indices continues due to the energy crisis (unwinding inflation due to high gas and electricity prices), then cryptocurrencies will continue to fall in price.
Since the corrective pattern in the BTC/USDt pair formed below the main trend line from the top of $69,000, the sharp price drop on Friday did not surprise me.
In addition, cryptocurrency buyers watched the dynamics of the S&P500 index, which also did not break through the trend line and also turned down. So the new week will be hot.
Now buyers need to group up to protect the $21K level. If they fail to protect it, then prices will quickly return to the levels of $19K and $18K. The more aggressive the US Fed rate expectations, the higher the probability of updating the $17.6K low.
During the week from August 22 to August 28, the focus of investors will be American statistics: two reports with data on business activity indices in the manufacturing and services sectors (August 23); second estimate of GDP for the 2nd quarter (August 25). It will have a strong impact on the markets if it is heavily revised from the first estimate. On Friday (August 26), the interest of market participants will be riveted to the data on the index of expenditures on personal consumption.
New data on inflation in the UK came out – above 10%, which the state has not seen for several decades. In China, the collapse of the largest developers is quite possible, and GDP indicators show the pace at which the default of the PRC becomes a reality. In Europe, inflation is also at record levels for 40 years, and the ECB cannot raise the rate, as this threatens to default Spain, Italy, Greece and France.
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