When will Bitcoin, which has been falling under the claws of the Fed, bottom out?

Bitcoin continued to expand its losses on Friday. Bitcoin once fell as much as 4.9% to $41,008, falling below $42,000, reaching its lowest point since September last year and down about 40% from its all-time high of about $69,000 on November 10. %.

Ethereum fell as much as 8.3%, hitting its lowest level since Sept. 30 last year.

When will Bitcoin, which has been falling under the claws of the Fed, bottom out?

Since the Federal Reserve released the minutes of its December meeting in the early hours of Thursday, market expectations for rising lending rates have continued to rise, and bitcoin prices have continued to fall, falling more than 5% on Wednesday and Thursday. The Fed pointed to the possibility of earlier and faster rate hikes and possible balance sheet shrinkage in the minutes of the meeting.

"The Fed's intention to shrink its balance sheet in the first quarter of 2022 is the main reason for the sell-off," Fundstrat strategists said in a note on Thursday.

Bitcoin rose about 60% last year, outperforming other asset classes thanks to institutional adoption, inflation hedging and investment diversification. But the cryptocurrency has struggled in recent weeks with turbulent financial markets. Soaring inflation is causing central banks to tighten monetary policy, which will erode the liquidity that has boosted prices across many assets.

The next move for Bitcoin price is not rosy; there is growing evidence that the decline may not be over.

Vijay Ayyar, vice president of corporate development and international operations at Singapore-based cryptocurrency exchange Luno, said the market was weak due to the holiday season, a tax-based sell-off and fears of possible Federal Reserve action. He expects the $38,000 to $40,000 price level to be the focus level.

Crypto billionaire Mike Novogratz also said that Bitcoin could fall further before it finds support. Novogratz noted that Bitcoin could bottom at the $38,000 to $40,000 level. The forecast is even more pessimistic than a few weeks ago, when he thought Bitcoin’s price could remain around $42,000.

Novogratz pointed out that Bitcoin’s bull market stemmed in part from the devaluation of fiat currencies, with “part of the bullish factor disappearing” as the Federal Reserve became hawkish. In addition, Novogratz believes that Bitcoin is still correlated with the Nasdaq, which has retreated from its highest level, which will also drive Bitcoin lower.

In addition, Todd Morakis, co-founder of JST Capital, a provider of digital financial products and services, said the slide in bitcoin prices was also affected by the unrest in Kazakhstan. Currently, there is a lot of cryptocurrency "mining" activity in Kazakhstan, and "mining" has been affected by the country's recent power supply problems.

Data from Blockchain.com shows that the Bitcoin hash rate fell from a record level of about 208 million terahash (1 trillion hashes per second) on Jan. 1 to 176 million terahash this Thursday.

Technical indicators are also 'a bit ugly'

Focus on the area that reverses the "Zone of Interest". The area of the so-called reversal "zone of interest" is $40,600 to $43,000; in the "zone of interest", previous resistance levels become support lines and vice versa. Over the past 12 months, Bitcoin has made several moves in this area. A dip below $40,600 would signal further weakness.

When will Bitcoin, which has been falling under the claws of the Fed, bottom out?

Second, each of Bitcoin’s declines over the past two years has found support at the 55-week simple moving average, which is currently around $46,000. During the April-June bear market, Bitcoin price remained above this support level even after a 56% drop; so did the flash crash in early December. Bitcoin’s continued slide has pushed prices below this key average.

When will Bitcoin, which has been falling under the claws of the Fed, bottom out?

Furthermore, with Friday's decline, the so-called "head and shoulders" pattern, a common reversal pattern, may have been activated.

When will Bitcoin, which has been falling under the claws of the Fed, bottom out?

A similar situation occurred between February and May, when Bitcoin fell from nearly $65,000 to $28,800. Bitcoin has now broken a key hurdle - if Bitcoin is further pressured and loses reversal support at $40,600, it will fall further.

When will Bitcoin, which has been falling under the claws of the Fed, bottom out?

Additionally, Bitcoin has seen six sharp pullbacks over the past decade, including this week’s drop. Each time the decline was smaller than the previous one. Taking the 56% drop in Bitcoin’s price in 2021 as an example, market investors should focus on the key level of $30,000, which is a 56% drop from last year’s record high of about $69,000.