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Bitcoin: Bear Market Fear and Despair

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For more than 75 days, the first cryptocurrency has been in a bearish cycle. This led to a 50% decrease in the value of the digital asset, which triggered the collapse of the entire crypto market. Absolutely the entire leading hundred is flying down, according to coinmarketcap, where, based on sensations, is not the end.

In this situation, many blame the bubble that has been inflating in the crypto environment for a long time, others blame China for consistently tightening measures against mining and cryptocurrencies. In fact, the problem is different, the correction of the U.S. stock market has become the main catalyst for fear, sales among the most risky assets. All cryptocurrencies belong to this asset class.

If there was a correction in the background market, then everything is quite concise, it is enough to open the Dow Jones, NASDAQ, S&P500 indices, and everything will fall into place. The markets are so overheated that it is very difficult to contain them. In addition to everything, the Fed began a complete change in monetary policy in terms of its tightening, which led to the curtailment of the quantitative easing program and an early increase in the interest rate.

With all the negativity out there, it’s hard to talk about a bullish trend, but it’s what many traders crave so much about.

Let’s start with the fact that trends cannot be eternal, there will always be a cycle in their structure: correction, momentum and changes in trading interests.

Based on the trends in the popularity of cryptocurrencies, there is still a positive turn here. This is indicated by the high interest in digital assets among professional players. MicroStrategy, which owns more than 124,000 bitcoins, continues to hold them, despite a significant correction of the asset. Their strategists are considering a medium-to-long-term approach. The same with Salvadoran President Nayib Bukele, who continues to increase the volume of purchases of digital gold by another 410 BTC. At the moment, the investment countries have losses, but the goal to change the public’s perception of the digital asset is well underway.

Investments of the Government of El Salvador in Bitcoin:

Bitcoin, despite the impressive downward trend over the past week, continues to lose value. This indicates that its oversold level still allows for further decline. As a foothold, traders see the $28,000/$31,000 price area, where there was a sharp decline in short positions between May and July last year.

It is still too early to talk about a complete reversal of the price from a downward to an upward move, there is no trading signal. So far, everything points to a subsequent decline, and this is not about bitcoin, which has dipped by more than half from the local maximum.

To understand in detail the essence of what is happening in the financial markets, check the weekly timeframe of the S&P 500 index. You will see an insatiable upward trend where, unlike cryptocurrencies, we do not have a significant weakening relative to the current period.

Thus, in order for the index to partially regroup the trading forces of an upward trend, it needs to correct by 20-25%. At the moment, we have a rollback of only 8.5%.

In total, if we see a continuation of the correction in the S&P 500 index, then with a high degree of probability Bitcoin will break through the $28,000/$31,000 support area and continue to decline.

S&P 500 W1 Chart:

In this situation, well-known American entrepreneur, and CEO of Galaxy Investment Partners Mike Novogratz offered Peter Schiff a $1 million dispute over the price of bitcoin. So, Schiff allowed further weakening of bitcoin due to the not-so-good situation in the U.S. stock market. Novogratz responded with a $1 million bet, which he agrees to donate to charity or another target of his opponent’s choice if Bitcoin trades below $35,000 in a year.

So far this is just a game for the public, but if you study Mike Novogratz’s answer in detail, you will see a different meaning. He is refering to the fact that bitcoin has already won back most of the possible weakening, and even in the event of a further fall in U.S. indices, the crypto market may play differently.

The index of emotions (aka fear and greed) of the crypto market is moving at the base, which already indicates a strong level of oversold in the market. So, if we proceed from the price reversal in the period of May-July last year, then the index of emotions is already in the area of changing trading interests. It is worth considering that the above opinion is just an assumption, as the index may drop even more, for example, as it happened on August 22, 2019, when it fell to the level of 5.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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