Why ‘low’ capitulation could portend more pain for Bitcoin price
The Bitcoin price is stuck in a tight range following yesterday’s US Federal Reserve (Fed) monetary policy announcement. Macro forces have taken over global markets and are increasing correlation across all asset classes.
For a deep dive into how the Fed’s 75 basis point hike affected the Bitcoin price, and a look at the crypto market’s internal dynamics, check out our editorial director Tony Spilotro’s analysis. Link below:
At the time of writing, the Bitcoin price is trading at $18,900 with a loss of 2% and 7% respectively over the last 24 hours and 7 days. The entire crypto top ten by market cap is recording losses over similar time periods with the exception of XRP which continues to trend up with a 29% gain in the past week.
Why Bitcoin Price Needs to See More Capitulation
As NewsBTC reported yesterday, the crypto market has completed all major short-term price catalysts with the Ethereum “Merge”. Now the market moves in step with macroeconomic factors and with traditional markets.
This could leave room for a relief rally or for more downside if major financial indices trend in one direction or the other. According to Jurrien Timmer, director of macro for investment firm Fidelity, there has been “little capitulation” for the S&P 500.
Although the stock index has been on a downtrend since hitting a record high of 4,819 to today’s levels of 3,837, Timmer believes the market has been resilient and may need to see more capitulation before forming a bottom. Via Twitter, the expert said the following, sharing the chart below:
It is surprising how little capitulation there has been in the market. Yes, the sentiment polls are all negative, but actual flows have not been. This seems consistent with the lack of volatility in the market (…).
The above coincides with analyst Dylan LeClair’s review of past Bitcoin cycles. The analyst believes BTC is forming a bottom after a “final capitulation” of the mining sector. This event could cause a crash in the network’s hashrate, which has yet to be seen. LeClair so:
I think with macroeconomic conditions as a catalyst, something similar will happen again. We’re not there yet.
Will Bitcoin Re-Test Its 2020 Lows?
But how low can the Bitcoin price and the crypto market crash? The benchmark cryptocurrency is already trading 80% lower than its all-time high of $69,000. This has historically marked a bottom for BTC’s price and has formed a barrier to further downside.
In that sense, rather than another leg down, the cryptocurrency could see more sideways movement through 2022 as the Fed continues to raise interest rates and traditional markets trend to the downside. This thesis could be supported by potential downside pressure on the US Dollar (DXY).
The currency has been trending higher, moving opposite the Bitcoin price and risk assets, but appears to be in a critical resistance area. This could give the crypto market room for a relief rally. As shown in the chart below, the DXY index may be over to see an increase in selling pressure.
