Bitcoin has huffed and puffed to get back to winning ways after last week’s plunge. But after several indecisive days, it has turned negative on the week, after falling some 4% on the session. More pain could be on the way.
There are several reasons why cryptos have been coming under pressure of late. In no order, they include:
- Concerns about the economic impact of the omicron virus, hurting all sorts of risk assets of late
- Central banks are reducing or withdrawing stimulus, which means there will be progressively less money flooding the financial markets
- governments are not likely to repeat the 2020-style fiscal support should the economy take another big hit due to the resurgence of Covid
- Rising inflation across the worlds is hurting consumers’ disposable incomes, reducing the appetite for risk-taking in crypto and other speculative markets
- Surging electricity prices, hitting record highs across many European countries, only serve to fuel inflation further, while also increasing mining costs for cryptos substantially.
From a technical point of view, the path of least resistance remains to the downside:
Source: ThinkMarkets and TradingView.com
Bitcoin held below resistance around the $51,600 area, which was the base of the breakdown from Sunday and the underside of the broken trend line. With prices back below the $50K handle and negative on the week and given that it has been on a 4-week losing streak, you just wonder if we will see another crash in the days ahead.
So far, the 200-day average has limited the downside, including after Sunday’s plunge when dip buyers took it back above this MA. However, the lack of significant follow-through since has those dip buyers worried. The selling could intensify, leading to another potential dip back into blue shaded region around 40K-45K region, which is a massive demand zone.
What the bulls would be hoping to see next is either the formation of a bullish candle in the blue zone to suggest a low is in, or in any case, a break back above the broken trend line – specifically, above $53,900.
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