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BTCâs abrupt drop to $39,650 came after the Federal Reserve floated the prospect of a fourth rate hike in 2022.
Global financial markets, stocks and cryptocurrencies took a knock on Jan. 10 after rumors that the Federal Reserve may hike interest rates four times in 2022 circulated and sparked a sell-off and sent the benchmark 10-year Treasury yield briefly above 1.8%.
Data from Cointelegraph Markets Pro and TradingView shows that a massive wave of selling broke Bitcoin's (BTC) support near $42,000, resulting in a plunge to $39,660 before buyers stepped in to buy the perceived dip.
BTC/USDT 1-day chart. Source: TradingView
Hereâs what analysts are saying about this latest drawdown in BTC and what could possibly come next as analysts watch to see what the impact of the Fed's easy money policies ending means for risk-on assets.
A shrinking money supply is bad for Bitcoin
The Fed's shifting monetary policy is generating significant challenges for risk-on assets but this was anticipated by analysts at Delphi Digital who noted that the headwinds facing BTC and the crypto market have more to do with âtighter liquidity conditions and heightened market volatilityâ than with rate hikes.
According to Delphi Digital, âthe macro tailwinds that helped propel BTC and crypto assets to new highs over the last 12â18 months have reversed courseâ as highlighted in the following chart showing that the global M2 supply topped out near March of 2021 and has been on the decline since then.
Bitcoin price vs. Global M2 Supply. Source: Delphi Digital
The peak in M2 supply came around the same time that Bitcoin set a new all-time high in early 2021 and was followed by a drawdown below $30,000 over the next couple of months.
Despite the late 2021 resurgence in BTC which once again established a new high at $68,789 in November, the continued drop in M2 supply has taken its toll on the market, which has been exasperated by the Fed sharing its plan to accelerate its timeline for raising interest rates.
Delphi Digital said,
âThe shift away from excess liquidity and accommodative monetary conditions is a structural headwind weâve highlighted in recent months, which now appears to be coming to a head.â
The talk of higher interest rates has also breathed new life into the U.S. dollar, which Delphi Digital noted âdoes little favor to assets like BTC, which tends to move inversely with USD.â
BTC/USD vs. DXY Index (Inverted). Source: Delphi Digital
Delphi Digital said,
âWe continue to stress how important the U.S. dollar is in determining the direction of global markets, especially assets tethered to the currency debasement narrative.â
Related: Bitcoin drops below $40K for first time in 3 months as fear set to 'accelerate'
âA good buying opportunityâ
Analysis on the current chart structure for BTC was offered by analyst and pseudonymous Twitter user âResoluteâ who posted the following chart highlighting the 42.5% decrease in BTC price from its highs in November.
BTC/USDT 2-day chart. Source: TradingView
Resolute said,
âConceivably a double bottom from the September 2020 low, after retracing Q4s move up. Currently trading below the 2d 200 EMA, which has historically been a good buying opportunity.â
Resoluteâs observation that this may be a good area of accumulation was echoed by cryptocurrency trader and Cointelegraph contributor MichaĂ«l van de Poppe, who posted the following tweet indicating a preference for opening a long as opposed to shorting the current market.
I'd rather long than short here for #Bitcoin. pic.twitter.com/QUc8n58b8K
â MichaĂ«l van de Poppe (@CryptoMichNL) January 10, 2022
The overall cryptocurrency market cap now stands at $1.192 trillion and Bitcoinâs dominance rate is 40.9%.
The views and opinions expressed here 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.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.