Bitcoin falls to curvy support that preceded 300-1,200% BTC price rallies

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The top cryptocurrency's next downside target is below $20,000.

KoWhen Bitcoin reversed its bullish bias in November 2021, when its price had reached $69,000, many analysts had predicted that it would recover to $100,000. But seven months later, the top cryptocurrency is busy searching for new yearly lows.

$26,000 Broken amid TerraUSD, Inflation FUD

Bitcoin plunged, and the bounced back, after crossing below $26,000 earlier this week. That was down almost 65% from its November high of $69,000, a decline led by persistent fears of higher inflation and the Federal Reserve's hawkish reaction to it.

Last week, the U.S. central bank did what markets were anticipating: it raised the benchmark interest rate by 50 basis points, promising similar increases later in the year, while also committing to begin unwinding its $9 trillion asset balance in June. That boosted the U.S. dollar demand, meaning investors started dumping their riskier assets for cash.

The fears escalated further this week after the latest inflation data. In detail, the U.S. consumer price index (CPI) topped 8.3% in April, down from 8.5% a month before but still coming higher than what the economists anticipated. As a result, Bitcoin, Ethereum, stocks, and other riskier assets fell in tandem.

The drop in the crypto market intensified also because of TerraUSD (UST), a stablecoin which had to maintain its equivalency with the dollar but failed to do after falling to as low as 23 cents earlier on Wednesday.

Professionals traders and investors use stablecoins, a digital version of the dollar, to move in and out of traders quickly, without having to convert their crypto assets to cash. But with TerraUSD--which was the third-largest stablecoin in an $180-billion stablecoin market-- collapsing, sentiment went dry for assets attached to it.

For instance, TerraUSD was supposed to partially backed by Bitcoin, held in a reserve managed by Luna Foundation Guard, a Singapore-based nonprofit launched by Terraforms Labs. When UST fell below its dollar peg, LFG's wallets containing more than $1.8 billion worth of BTC also got wiped off, leading traders to believe that the firm had sold Bitcoin to shore up the value of UST.

As a result, Bitcoin price fell below $26,000 for the first time since December 2020. Another token in LFG's reserves, dubbed Avalanche (AVAX), also decline massively due to same downside sentiment.

What's next for BTC

Traders bought the Bitcoin dip as it recovered back to $30,000 ahead of this week's close.

The pullback originated near its 200-week exponential moving average (200-week EMA; the blue wave) that had successfully marked the bottom in the Bitcoin market in 2018 and 2020. For instance, its last two tests as support preceded a 300%-plus and circa 1,200% price rallies, including Bitcoin's run-up from below $4,000 in March 2020 to as high as $69,000 in November 2021.

BTC/USD weekly price chart. Source: TradingView

That raised the possibility of Bitcoin rebounding similarly in the coming weeks or months. Albeit, one needs to look the fundamentals surrounding these bounces across the history.

For instance, the bounce in 2018-2019 also coincided with a rising trade war between the U.S. and China, followed by Facebook's decision to launch a crypto-focused payment project (which got shelved later due to regulatory concerns).

Similarly, the March 2020 bottom happened after the Fed intervened to protect the market from crashing amid the Covid-19 pandemic crisis. There were excess dollars in the economy, which, combined with near-zero interest rates, made cash cheaper to hold. That helped the riskier assets balloon without a trouble.

But such catalysts are missing in 2022, meaning there is a strong likelihood that Bitcoin falls through its 200-week EMA support. Suppose it happens, the next support level in queue comes to be near $18,500, according to the Fibonacci retracement graph drawn between the March 2020-swing low and November 2021-swing high.

Conversely, a decisive rebound from 200-week EMA would have Bitcoin eye $36,000 as its next upside target.

“This story has been published by and the information contained in this article is for only informational purposes. It does not present any investment advice nor does it serve as a substitute for individual investment.”

Media Contact:

Name: Adil Husnain

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