16 May 2022 08:44, UTC
Reading time: ~2 m
Experts analyzed the situation in the industry and warned about the risks of the collapse of the main cryptocurrency to $20 thousand.
Last weekend, the rate of bitcoin exceeded $31 thousand, after which it began to fall again. As of May 16 11:00 Moscow time, the cryptocurrency is trading at $29.5 thousand, it has fallen in price by 0.6% over the past 24 hours and by 13% over the week.
RBC Crypto analysts told us what to expect from the market in the next seven days.
“Sellers took down key support levels.”
BitRiver financial analyst Vladislav Antonov
The crypto market has been falling for seven weeks in a row. During this time, bitcoin has fallen by 39% against the U.S. dollar. The last week was also very volatile. The fall has resumed since last Monday. Active selling of the cryptocurrency was observed on May 9 and 11. At first, bitcoin rate fell to $29.73 thousand. After 36 hours of correction, the fall intensified to $26.7 thousand.
The reasons for cryptocurrency weakening were unchanged: risk aversion amid the dollar rally; rising U.S. government bond yields; falling U.S. stock indexes and a tightening quarantine due to COVID-19 in Beijing. Also at the beginning of the week, according to the CryptoQuant platform, investors took cryptocurrency to exchanges for subsequent sale.
Increased volatility in the market was seen after the release of the U.S. inflation report for April. The annual rate of price growth slowed less than expected in April. The biggest blow fell on shares of technology corporations from IT and communications sectors.
After the inflation report, fears returned to investors that the Fed would move to aggressively raise rates to rein in inflation. And tighter monetary policy would push the economy into recession.
The UST and LUNA exchange rate situation added fuel to the fire. The UST has been detached from the dollar, against this background, the LUNA token went to zero and “fell into a coma”. Binance suspended all trading and removed all pairs with LUNA, leaving only LUNA/BUSD. The token survived clinical death and still hasn’t come out of the coma.
Binance reported that LUNA trading has resumed. UST returned to the $0.20 level. On Saturday the price of LUNA recovered to $0.00045, while in April the token was trading at $115.
The UST and Luna situation caught the attention of regulators. U.S. Treasury Secretary Janet Yellen called for legislation to regulate stablcoins by the end of 2022. The Fed believes that the crisis in the crypto segment could hurt the economy and threaten financial stability. Market participants also have many questions about Tether. Investors and regulators question the collateral quality of such assets, putting investors’ capitals at risk. The Fear and Greed Index was down as low as 10 points (“extreme fear”).
The Terra theme will continue to put pressure on crypto investors in the coming weeks, despite Friday’s bounce in bitcoin. On Friday, the price rebounded to $31,000. The cryptocurrency rose on the back of a general dollar correction in forex and gains in the S&P500 and Nasdaq indices.
Federal Reserve Chairman Jerome Powell reiterated that the central bank will raise interest rates by 0.5% at its next two meetings. His statements allayed fears of a 75 basis point rate hike, which some investors had expected.
On Saturday, May 14, the bitcoin price was up 1.35% to $28.8k. Sellers took down key support of $28-$30k. Even though the price is trading in that zone, there remain high risks of a further move to the $20k level. The time zone for a reversal, according to my calculations is between May 30 and June 6.
On Tuesday (May 17), the head of the US Federal Reserve and ECB head Christine Lagarde are scheduled to speak. If Powell once again confirms that the Central Bank will not raise the rate by 75 bps, it is likely to see a correction in stock indices and bitcoin. For buyers, the nearest targets will be the levels of $35.25 thousand and $38.2 thousand.
“Bitcoin and other coins will continue to decline.”
Artem Deyev, head of analytical department at AMarkets
For the whole crypto market now the economic indicators in the United States are decisive. The market decline and the decline of bitcoin (along with other coins) began two weeks ago and accelerated last week, immediately after the Federal Reserve raised the rate by 0.5% and the release of inflation data in April (8.3% instead of the expected 8.1%). Both factors became powerful triggers for sell-offs – investors understand that the world’s first economy is entering recession, and on such a background, everyone gets rid of risky assets.
In this regard, the dynamics of this week will also be important for cryptocurrencies: data on retail sales and real estate purchases in the United States will be released (for both indicators a slowdown is expected, which again will be factors for the reduction of risky assets).
There is now a clear understanding in the markets that the United States is entering a recession, and there are a number of traditional signs of this. A cycle of rate tightening by the Fed has begun (as a method of dealing with record inflation), there is an inversion of the bond yield curve, and there is geopolitical tension in the world. Usually after the stock markets peak (which they did last year), a recession in the U.S. begins within 12 months. Which is actually what is happening now.
Cryptocurrencies, as a risky asset, have no chance for growth in such a situation. Both bitcoin and other coins will continue to decline, occasionally working off a fall, but it will be a weak rebound. Bitcoin this week could be in the $24,000-29,000 range.
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