It appears that essentially all relief rallies in the cryptocurrency markets over the past few months have been precisely that, as the firepower is simply not sufficient to provide enough force to change the bearish trend.
The latest such example took place at the beginning of the current business week, as bitcoin was rejected after its push to $65,600 and dropped to a ten-day low of $63,000. Here are some of the potential reasons behind this.
FOMC Uncertainty
Given the timing of this correction, the most obvious first reason appears to be macro, as tomorrow is the next Federal Reserve FOMC meeting. Although the US central bank is widely expected to leave the federal funds rate unchanged at 3.50%-3.75%, this is shaping to be one of the least predictable decisions in recent years.
Markets, experts, and prediction platforms recently assigned roughly a one-in-three chance to a surprise rate increase as policymakers continue to confront persistent inflationary pressures. Although the CPI data for June was a lot lower than expected, the general consensus is that the reading was slightly misleading and perhaps a one-off.
Investors will closely watch and examine Chairman Kevin Warsh’s press conference for clues about the central bank’s approach during the remainder of the year. Bitcoin, altcoins, and other speculative assets tend to struggle when investors are uncertain about the direction of interest rates. Higher borrowing costs and rising real yields make risk-free assets more attractive, and vice versa.
As such, the first reason appears to be investors and traders de-risking before the key economic event.
Broader Market Crash
Bitcoin is not isolated from the other markets, especially those also considered risk-on. As such, whenever there are big moves in those, it tends to follow along (or sometimes lead). The past 24-36 hours have been quite painful for Asian stocks, for example. South Korea’s KOSPI has plummeted by double digits, going down from 6,767 to 6,023.
Japan’s Nikkei 225 has slipped by over 4% within the same timeframe, dipping from 64,800 to 62,365. The situation in the US was not much more positive. Although the actual big indexes remained flat, some of the most prominent names, such as Nvidia and Micron, posted painful losses of up to 5%.
Last but not least was gold. The precious metal peaked at almost $4,120 yesterday, but it was rejected and dumped by just over $100 in hours.
ETF Outflows
We will list this as the third and last major reason because the actual outflow value was not as significant as it used to be during the June crash, for example. Yes, Monday was another day in the red, but the net outflows remained at under $12 million. This is essentially nothing compared to the $100 million+ withdrawals investors made regularly last month.
Nevertheless, it still continued a red streak that began last Thursday when the funds lost $225 million and on Friday when the outflows topped $240 million.
What’s Next?
Ali Martinez warned earlier today that the Bitcoin 3-day Bollinger bands have squeezed tightly, which generally precedes major price moves. The last few months have been quite dull in terms of volatility, and he noted that such periods are “often followed by a major price expansion.”
Ted Pillows believes the next big support for BTC remains at $62,000, which, if broken to the downside, will lead to a very dark future and perhaps another leg down to under $60,000.
On the more positive side, CW added that certain whales are “rapidly recovering their selling volume following the decline,” which could lead to a short-term bounce off. Additionally, the analyst claimed that there are no major sell walls on bitcoin’s path forward if it indeed rebounds soon.
These technical tools will definitely be used to watch, but the most important factor remains tomorrow’s FOMC meeting. BTC is likely to experience some heightened short-term volatility, no matter what the decision is.
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