The Market Is Slumping Endlessly | Where Is the BTC Turnaround?

1. With the deepening of institutional participation in the cryptocurrency market, Bitcoin's performance is actually closer to that of technology stocks.

2. This round of decline was mainly caused by the Fed's interest rate hike.

3. On May 4, the Federal Reserve again announced a 50 basis point increase in interest rates, raising the target range of the federal funds rate to 0.75% ~ 1%. On May 6, the market trend reversed rapidly and completely opened the current round of decline cycle.

4. The price of Bitcoin is likely to fall rapidly and test the price level of $30000. The last time Bitcoin fell so far was in June 2021.

5. On May 10, the price of Bitcoin hit the support level of $30000 and then rebounded. Then, El Salvador, the world's first country to use Bitcoin as legal tender, announced that it had bought 500 Bitcoins at an average price of $30744.

6. If more countries choose to hold Bitcoin as a sovereign currency, Bitcoin may change from the current "institutional bull" to "national bull", getting rid of US stocks and going out of the independent market.


Since losing the support level of $35000 on May 8, the price of Bitcoin has not stopped its decline, but further fell and fell below the integer level of $33000 on May 9. It is now reported as $32284. This price is also a new low since 2022, down more than half from the high of $68991 in November last year. There is strong support for the price of Bitcoin in the area of $32000 ~ 35000. Bitcoin has touched this area and rebounded twice since 2022. Due to the current strong market panic, it still needs time to test whether the Bitcoin price can be effectively supported in this round of the downward cycle.


The price trend of the whole cryptocurrency market is highly related to the price of Bitcoin. Within seven days, the price of Bitcoin fell by 16%, driving the synchronous decline of the whole cryptocurrency market. The price of Ethereum also fell by 15% within seven days, now reported at $2400. The situation of some alternative currencies was even worse. The price of DOT fell by 21%, SHIB fell by 20% and ApeCoin, which was issued shortly after, fell by as much as 30%. In addition, LUNA prices also fell by 30% within a week, which is suspected to have entered a "death spiral".


Risk attributes revealed that Bitcoin fell simultaneously with US stocks

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Previously, Bitcoin was often considered an anti-risk asset similar to gold, but with the deepening of institutional participation in the cryptocurrency market, Bitcoin's performance is actually closer to that of technology stocks. According to a report from the U.S. banking industry, since June 2021, the correlation between Bitcoin and gold price has been close to zero. On the contrary, it shows a certain correlation with the S & P 500 index and a strong correlation with the Nasdaq 100 index. In addition, in the last two months, Bitcoin prices have shown a certain degree of negative correlation with gold prices.



Global central banks began to raise interest rates, leading to a decline in the market

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This round of decline was mainly caused by the Fed's interest rate hike. Since the outbreak of the COVID-19, the disruption of the industrial chain has led to an increase in production costs, supply inflation around the world, and the conflict between Russia and Ukraine has pushed up the prices of energy, food and other bulk commodities. Presently, the domestic inflation rate in the United States has soared to 7.9%, the highest in 40 years. The cost of living such as food, gasoline and rent has risen rapidly, which has seriously affected the living standards of American families.

In order to control domestic inflation, the Federal Reserve should not quickly launch a tightening fiscal policy to suppress inflation expectations and return the inflation rate to the target level. At the beginning of this year, the US Federal benchmark interest rate was still in the range of 0 ~ 0.25%. Major financial institutions around the world believe that the Fed will raise the federal benchmark interest rate by 125 to 175 basis points in 2022 by raising interest rates by 25 basis points each time and five to seven times. Some institutions also believe that the Fed has the risk of raising interest rates by 50 basis points at one time. On March 16, the Federal Reserve announced an interest rate increase of 25 basis points to adjust the federal benchmark interest rate to the range of 0.25% ~ 0.5%, which led to the diving and subsequent rebound of the three major stock indexes in the United States.

However, this asymptotic inflation control has attracted dissatisfaction from all parties. Some hawkish officials believe that the Fed should use thunder means to quickly raise interest rates to the neutral range, which makes the market worry about the risk of the Fed raising interest rates by 75 basis points at one time. On May 4, the Federal Reserve again announced a 50 basis point increase in interest rates, raising the target range of the federal funds rate to 0.75% ~ 1%. This is also the first time the Fed has raised interest rates by 50 basis points since 2000. At the same time, the Federal Reserve also announced that it would start to shrink its watch from June 1, and the scale of reduction is expected to reach $9 trillion. At present, the interest rate neutral range set by the Federal Reserve is in the range of 2% ~ 3%, which means that there will be many interest rate increases this year. After the meeting, Fed chairman Powell said that the Fed is still expected to raise interest rates by 50 basis points twice at the two meetings in June and July, but there is no larger interest rate increase plan (that is, it will not raise interest rates by 75 basis points at one time).

Powell's remarks made the US stock market rise temporarily, but then on the 6th, the market trend reversed rapidly and completely opened the current round of decline cycle. It is generally believed that the price of technology stocks is more sensitive to changes in interest rates. When interest rates rise, global risk aversion will rise, and investors will prefer consumer goods and commodities to avoid risky assets such as technology stocks and cryptocurrencies.


In addition to the Federal Reserve, many central banks around the world also entered the interest rate hike cycle this month. For example, on May 3, the Australian central bank began to raise interest rates again after an interval of 11 years; On May 5, the Bank of England also announced that it would raise the benchmark interest rate from 0.75% to 1%.


The risk of "surrender" still exists

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On May 8, Carter Braxton Worth, founder of Worth Charting, believed that the price of Bitcoin could fall rapidly and tested the price level of $30000. The last time Bitcoin fell so far was in June 2021. There are also concerns that the Bitcoin market will once again "surrender", that is, Bitcoin holders fall into out of control panic and sell Bitcoin on a large scale, leading to a further decline in prices. On March 12, 2020, Bitcoin "surrendered", and the price fell by 43% in one day.



Conclusion: the possibility of "national cow"

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In the short term, the price trend of Bitcoin mainly depends on the trend of NASDAQ. Presently, with the deep participation of financial institutions, it is still difficult for Bitcoin to get out of the current narrative, get rid of the influence of US stocks and get out of the independent market. But in a crisis, there may be a turnaround. At the time of Japanese writing on May 10, the price of Bitcoin hit the support level of $30000 and then rebounded. Then, El Salvador, the world's first country to use Bitcoin as legal tender, announced that it had bought 500 Bitcoins at an average price of $30744.


The current round of US interest rate hike has undoubtedly hurt the interests of most underdeveloped countries. For some countries that want to get rid of US financial control, Bitcoin has become a feasible choice. If more countries choose to hold Bitcoin as their sovereign currency, is it possible for Bitcoin to change from the current "institutional bull" to "national bull"? This prospect may be worth imagining.

Market Note: the current market fluctuates greatly, Gate.io reminds the majority of users to pay attention to risks, and do not follow the bull market and beat the bear market, and invest in blindly.


Author: Gate.io Researcher: Edward H. Translator: Joy Z.
* This article represents only the views of the researcher and does not constitute any investment advice.
*Gate.io reserves all rights to this article. Reposting the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.



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