Bitcoin Crash – Is the Bull Run Over?

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As a seasoned crypto investor, I’ve seen my fair share of market volatility, and the recent price drop in Bitcoin is nothing new to me. However, it’s always disheartening to see the value of my investments decline, especially when it comes to something as significant as Bitcoin.

Bitcoin dropped to $56,675 in the lead-up to Wednesday’s Fed decision with the Bitcoin bull run in danger of stalling, as market sentiment turns bearish. On Tuesday Bitcoin had dropped around 6% dipping below the $60,000 support level before dropping further again on Wednesday.

I’ve experienced a setback in my Bitcoin investment recently, as its value has dropped approximately 20% from the all-time high of $73,100 it reached in March. The decline in April was particularly sharp at around 18%, marking an end to seven consecutive months of positive gains. This monthly pullback represents the worst performance since the unfortunate incident involving the crypto exchange FTX back in November 2022.

For those feeling perplexed by this week’s price decrease, it’s worth mentioning that Bitcoin has risen approximately 20% since the ETFs were introduced in January, and surged more than 34% so far this year.

 

Rates Stay Steady

On Wednesday, according to plan, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve didn’t change its key interest rate, which currently stands between 5.25% and 5.50%. In sync with predictions, the FOMC reported a pause in the path towards reducing inflation for the year and showed hesitation to alter rates until they see clear evidence that inflation is consistently moving toward the desired 2% level.

As an analyst, I would interpret the Federal Open Market Committee’s (FOMC) announcement as a deceleration of its quantitative tightening (QT) process. Specifically, the FOMC will now reduce its holdings of Treasuries by $25 billion per month instead of $60 billion per month. In simpler terms, the FOMC is buying fewer Treasuries each month. Economist Joseph Brusuelas anticipates that this change could lead to increased risk taking and higher asset prices, assuming other factors remain constant.

As a crypto investor looking back at early 2024, I recall that market predictions suggested multiple interest rate cuts from the U.S. Federal Reserve at the start of the year. However, my optimism regarding these anticipated cuts has waned in recent weeks due to the robust economy and a slight rise in inflation during the first four months. Before today’s Federal Open Market Committee (FOMC) decision, data from the CME FedWatch tool indicated a 25% likelihood of no rate cuts for the entire year – a significant shift from the 1% chance just one month prior.

The change in investor expectations has led to a downturn in traditional markets, with the Nasdaq dropping around 5% since hitting its 2024 peak three weeks ago, and the S&P 500 experiencing a comparable decrease since reaching its highest point for the year in late March. Additionally, Bitcoin’s price drop of over 20% from its mid-March record high of $73,000 can be partly linked to this shift in market sentiment.

As an analyst, I’ve examined the prediction made by digital asset research firm 10x, and they anticipate a potential drop in Bitcoin’s price to the $52,000-$55,000 range due to ongoing selling pressure. This selling pressure stems from substantial outflows from U.S. spot exchange-traded funds, which amounted to approximately $540 million since the Bitcoin halving on April 20. The average entry price of U.S. Bitcoin ETF investors is estimated at $57,300. As the price of Bitcoin approaches this average entry price, there’s a higher probability that more unwinding of these ETFs will occur, as per the analysis provided by 10x CEO Markus Thielen.

“He remarked that there may have been numerous investors in the crypto market, focusing on buying and holding during the halving event in ‘TradeFi’ style. However, this phase is now completed. We anticipate further unwinding as the typical Bitcoin ETF purchaser will be facing losses when Bitcoin falls below $57,300. This could lead to a correction of approximately 25% to 29%, bringing the price down from the peak of $73,000 to our projected range of $52,000 to $55,000.”

Analysts Turn Bearish

As a technical analyst and crypto trader, I’ve observed that the recent Bitcoin correction has been prolonged, with prices dipping by around 23.6%. This represents a deeper pullback than usual, as most corrections last between 2 to 3 weeks, and even longer ones seldom exceed 2 months. I’ve compiled a list of six previous Bitcoin pullbacks ranging from 18% to 23%, which all occurred since the Bear Market Bottom in 2022. The current correction (occurring in April/May 2024) stands out as the most significant one in the cycle based on this historical data.

According to well-known technical analyst Dave the Wave, the price level of $58,000 signifies a 0.38 fib retracement in the recent upward trend. He highlighted that this figure serves as a significant support and if it weakens, a more substantial correction towards $48,000 could follow.

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2024-05-02 03:38