Global financial markets, stocks and cryptocurrencies took a knock on Jan. 10 after rumors that the Federal Reserve may hike interest rates four times in 2022 circulated and sparked a sell-off and sent the benchmark 10-year Treasury yield briefly above 1.8%.
Data from Cointelegraph Markets Pro and TradingView shows that a massive wave of selling broke Bitcoin's (BTC) support near $42,000, resulting in a plunge to $39,660 before buyers stepped in to buy the perceived dip.
Here’s what analysts are saying about this latest drawdown in BTC and what could possibly come next as analysts watch to see what the impact of the Fed's easy money policies ending means for risk-on assets.
A shrinking money supply is bad for Bitcoin
The Fed's shifting monetary policy is generating significant challenges for risk-on assets but this was anticipated by analysts at Delphi Digital who noted that the headwinds facing BTC and the crypto market have more to do with “tighter liquidity conditions and heightened market volatility” than with rate hikes.
According to Delphi Digital, “the macro tailwinds that helped propel BTC and crypto assets to new highs over the last 12–18 months have reversed course” as highlighted in the following chart showing that the global M2 supply topped out near March of 2021 and has been on the decline since then.
The peak in M2 supply came around the same time that Bitcoin set a new all-time high in early 2021 and was followed by a drawdown below $30,000 over the next couple of months.
Despite the late 2021 resurgence in BTC which once again established a new high at $68,789 in November, the continued drop in M2 supply has taken its toll on the market, which has been exasperated by the Fed sharing its plan to accelerate its timeline for raising interest rates.
Delphi Digital said,
“The shift away from excess liquidity and accommodative monetary conditions is a structural headwind we’ve highlighted in recent months, which now appears to be coming to a head.”
The talk of higher interest rates has also breathed new life into the U.S. dollar, which Delphi Digital noted “does little favor to assets like BTC, which tends to move inversely with USD.”
Delphi Digital said,
“We continue to stress how important the U.S. dollar is in determining the direction of global markets, especially assets tethered to the currency debasement narrative.”
“A good buying opportunity”
Analysis on the current chart structure for BTC was offered by analyst and pseudonymous Twitter user ‘Resolute’ who posted the following chart highlighting the 42.5% decrease in BTC price from its highs in November.
“Conceivably a double bottom from the September 2020 low, after retracing Q4s move up. Currently trading below the 2d 200 EMA, which has historically been a good buying opportunity.”
Resolute’s observation that this may be a good area of accumulation was echoed by cryptocurrency trader and Cointelegraph contributor Michaël van de Poppe, who posted the following tweet indicating a preference for opening a long as opposed to shorting the current market.
The overall cryptocurrency market cap now stands at $1.192 trillion and Bitcoin’s dominance rate is 40.9%.
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