The early days of 2022 have spoiled new year plans for many Bitcoin hodlers (“hodlers” is crypto lingo for steadfast holders/investors) as the BTC prices keep on falling. The recent death cross, falling wedge pattern, threats of US central bank tapering, and the falling stock prices of Crypto holding companies make January 2022 highly bearish.
Taking a short history lesson, the correction phase (downfall) started on November 10 with the formation of an evening star pattern at $68K. The price has fallen almost 40% since the rejection and approaches the $40K support zone.
Despite the multiple bullish attempts along the way to overturn the bearishness, BTC prices completed a full circle as it started 2021 by marking a high at $40K. The price has managed to sustain above the $40K since September 2021, as part of the amazing bull run to the $69K all-time high reached in November.
Technical Analysis
The falling BTC price action gives rise to a resistance trendline in the daily chart and leads to the formation of a falling wedge pattern. The price rests close to the support zone at $40K after the fall of 18% in the past two weeks from the resistance trendline.
The crucial exponential moving averages (50 and 200 days) give a death cross in the daily chart. The death cross has been pretty much insignificant for the past two years. For example, the previous crossovers in July 2021 and March 2020 have been lagging behind predictions as the downfall failed to continue.
However, these crossovers had some rumours or some good news backing the price and recreating the uptrend. For example, the rumour of Amazon accepting Bitcoin payments and the conference of crypto influencers like Tesla CEO Elon Musk, Twitter CEO Jack Dorsey, and ARK Invest CEO Cathie Wood promoting the benefits of Bitcoin to the masses.
The relative strength indicator at 29% crosses within the oversold zone in the daily chart. Moreover, the 14-day SMA in the indicator shows a falling slope indicating that the bears are controlling the trend.
However, the price rests close to the confluence of the support trendline and the support zone at $40K and as the underlying bearishness approaches saturation, a bullish retracement is possible.
U.S. Federal Issues And The Crashing Stock Prices
The latest rise in US inflation, breaking above the 39-year high, brings more attention from the central bank to take aggressive steps. The Consumer Price Index (CPI) rose to 6.8% in November.
With the rise in CPI, the consumer prices rise meaning a growth CPI indicates the rise in inflation, while a falling CPI indicates lower inflation or even deflation. Inflation decreases one’s standard of living if their income fails to outgrow it. Therefore, a high inflation rate can cause a drastic effect on the economy.
Therefore, the increased inflation rates can lead to the U.S. Federal Reserve Bank taking aggressive decisions to lose the national monetary policies.
“If financial markets grow nervous, the Fed may have an aggressive tightening cycle, and the first thing that gets sold is your top-performing assets and that would be cryptos for many traders,”
- Edward Moya, a senior markets analyst at the foreign-exchange brokerage Oanda, stated in an interview.
Furthermore, after the long-squeeze (downfall in prices due to margin calls of over-leveraged positions) the leverage in BTC future is reducing thus signaling a possible recovery.
However, despite the technical indicators and the stabilizing leverages, a key factor that will decide the upcoming trend of BTC is the U.S. Inflation rates that will be announced on Wednesday this week (January 12, 2022). This is because the CPI data will be a significant determinant of whether the U.S. Fed will turn towards more aggressive measures for quantitative tightening (QT) which will decide the liquidity in the market thereby driving further down the BTC prices.
These big upcoming changes in the crypto-verse with increasing fear levels in the market, the stock prices of many Bitcoin-holding companies crashed more than 10% in the past week.
Public Companies like Microstrategy (MSTR), Coinbase (COIN), and Square (SQ) that have been on a BTC shopping spree, the stock price of MSTR fell 12.29% in the past week. Microstrategy holds 121,044 Bitcoins worth more than $5 Billion. The COIN and SQ stock price have decreased by 9.21% and 13.10% respectively.
The scenario remains the same for many other crypto holding companies which await the decision by Feds and hope for a bullish 2022.
In conclusion, the next crypto winter can be decided by the decision made by the U.S. Fed to control the inflation rates in the U.S. Till then, the $40K stands strong and can act as a launchpad if the Federal Reserve’s decisions align with the BTC sentiments.
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