bitcoin (BTC) is starting a new week with plenty to catch up on after its all-time worst April performance.
The monthly close put BTC/USD firmly within its established trading range for 2022, and fears are already that $30,000 or even lower is next.
That said, sentiment improved in early May, and while crypto remains largely tied to macro factors, the on-chain data is pleasing rather than panicking analysts.
With a decision on US economic policy expected on May 4, however, the next few days could be all about knee-jerk reactions as markets try to align themselves with central bank policy.
Cointelegraph examines these and other factors that will shape Bitcoin price activity this week.
Fed back in the spotlight
Macro markets are – as is now the norm – on edge this week as another US Federal Reserve meeting looms.
As inflation rages around the world, President Jerome Powell is expected to honor his previous promises and announce hikes in key interest rates.
Wednesday will be decisive.
The Fed is expected to confirm a $95 billion per month selling program that has yet to hit the market. https://t.co/gRRwd059Lw
— Charles Edwards (@caprioleio) May 2, 2022
The severity and speed of their application is a subject of debate, and a separate debate concerns whether the markets have already “integrated” various options.
Any shock is likely to trigger at least temporary volatility in the markets, and over the past six months or so, crypto has been no exception.
Attention is therefore turned to the meeting of the Federal Open Markets Committee (FOMC) to be held on May 3 and 4.
“The first came from the Fed. Then the Netflixpocalypse. Then the Russian invasion. Then the penalties. Then the Fed and the biggest Treasury dump ever. This week it was the winnings. Next week the Fed again,” macro analyst Alex Krueger abstract during the weekend:
“The Fed’s QT announcement on Wednesday will determine the fate of the market.”
Krueger was referring to a policy known as quantitative tightening (QT) – the counterpart to quantitative easing, or QE, which describes the pace of withdrawal of economic support from the Fed in an effort to reduce its balance sheet by 9 trillion. of dollars.
Risky assets, already sensitive to a conservative environment, are already being warned by Bitcoiners to lose big in the coming months, taking the crypto with them.
“It’s easy to ignore this, given the broad market pullback last week, but: With meme stocks, Bitcoin-sensitive stocks are already hitting new lows,” said Jurrien Timmer, head of global macro at asset management giant Fidelity Investments. , added.
An accompanying chart of the Bitcoin-sensitive Goldman Sachs stock index — 19 large-cap stocks exposed to crypto — explained the relative pain already being felt.
Next week the focus will be on inflation itself with the release of US Consumer Price Index (CPI) data for April.
Time for $28,000 Bitcoin?
Although it subsequently regained ground, BTC/USD reaffirmed at least a short-term desire to trade in a tight range well below its 2022 high of $46,000 trading corridor.
Previously, April was expected to perform better, but in the end, 2022 ended up being the worst April ever for Bitcoin, with overall losses of 17.3%, according to data from the Coinglass on-chain monitoring resource. confirmed.
On the back of that, it’s no wonder analysts’ mood is equally cautious.
“The BTC chart is heavy right now, and a break below $35,000 could cause a rush out… But I don’t trust the breakdown patterns in this range. We’ve seen short squeezes and ATH breakout traps over the past year,” said popular trader Chris Dunn. tweeted May, the 1st :
“It’s risky to anticipate, better to react…I would love a washout of $26,000.”
Dunn is far from alone in calling for a breakout event to take the market to $30,000 or lower.
“As for the capitulation, I think Bitcoin would need to go below $30,000,” analyst Matthew Hyland argued in one of the many Bitcoin volume profile tweets:
“Low volume since May of last year which has taken BTC to $30,000. Low volume = low turnover of buyers and sellers. Below 30,000 would unlock buyers who bought before 65,000 at the start of 2021.”
Hyland explained that low-volume markets are likely to experience larger price swings and that a significant drop in BTC prices may be needed to revive engagement amid a general lack of participation at current levels.
To unlock higher volume would require Bitcoin to flush below 30k
Based on volume levels between 20,000 and 30,000 (which BTC spent less than 3 weeks in), I wouldn’t expect it to match the volume profile we saw last May, but it would still stand out from the current volume: pic.twitter.com/msQRmz9UVi
— Matthew Hyland (@MatthewHyland_) May 1, 2022
During the weekend, meanwhile, the calls has emerged for a short term trip at $35,000.
The strength of the US dollar keeps the pressure on
April may have come and gone, but the ogre of the US Dollar Index (DXY) remains firmly in the room.
A single day of consolidation on April 29 is already history, and on May 2 DXY was already attempting to continue a breakout that saw dollar strength reach its highest level since 2002.
At 103.4 at press time, DXY shows no signs of a bigger pullback, much to the disappointment of Bitcoiners at the mercy of the inverse correlation.
“At the moment, the inverse relationship between bitcoin and DXY […] shows that if the index holds above the resistance level of 102 DXY, it could weaken bitcoin, and the price action could return to the $35,000 area and below, especially if the rise in DXY can be attributed to the tightening of monetary policy”, on – the latest news from the chain analysis company Glassnode Unexplored newsletter Explain.
In this case, 102 was not a problem for DXY, which could gain even more if the Fed’s rate hike decision is at the higher end of the spectrum.
“The evolution of the USD is highly dependent on the course of action of the Fed. Rising inflation and the potential 50 basis point rate hike in early May could strengthen the DXY,” Glassnode added.
As Cointelegraph recently reported, other major global currencies suffered as well as USD crypto in recent weeks, with a particular focus on the fate of the Japanese yen. Japan, unlike the United States, continues to print large amounts of cash, further devaluing its currency.
Trader: illiquid supply outweighs the importance of falling prices
Last week saw a new record high for the proportion of inactive bitcoin supply for at least a year — 64%.
As seasoned hodlers – or at least those who bought before the July 2021 low near $28,000 – there is therefore a determination not to capitulate just yet.
Now more data has been added to the mix, and it comes in the form of an illiquid supply.
According to Glassnode’s Illiquid Supply Change indicator, the past few weeks have product large increases in the overall supply segment of BTC, which is no longer available for purchase.
The result is an illiquid supply shift reaching levels not seen since late 2020, when BTC/USD began showing signs of a “supply shock” as market participants piled into which was already a solidly hodled asset class.
“This number is reaching high highs, which we also saw in 2020 (the accumulation). Ultimately, a large number of coins are ‘illiquid’, which adds to the potential for an eventual supply shock” , said Michaël van de Poppe, contributor to Cointelegraph. mentioned in the comments on the numbers.
Continuing, Van de Poppe argued that the indicator “says a lot” and may even dispel some of the fear of a drop to $30,000.
“Yes, the market can still reach a new low in which the bear market continues (relatively; the altcoin bear market has currently already been active for a year, which means that the retail has disappeared) and a hit of $30,000 can be achieved. But fundamentally the data speaks volumes,” he added.
Crypto Sentiment “Crosses” Macro
In what could be a silver lining under the current circumstances, crypto sentiment is already pointing higher this week, although traditional market sentiment remains jittery.
the Crypto Fear and Greed Indexafter hitting two-week lows of 20/100 last week, is now out of its “extreme fear” zone.
At 28/100, the Crypto Index is now even above its traditional financial counterpart (TradFi), the Fear & Greed Index, which on May 2 measured 27/100.
Should crypto continue to fulfill its function As an indicator of upcoming market moves, there may be modest cause for relief in the data.
28/100 marks Crypto’s best reading since April 17.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.