Bitcoin drifts below $42,000 as US equity futures fall

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By Samuel Indyk & David Pichodo

Investing.com – The price of Bitcoin drifted below $42,000 on Tuesday morning as the general risk-off tone in the market weighed on major cryptocurrencies.

US equity markets look set to start their holiday-shortened week lower with S&P 500 Futures down over 1%. The move lower in riskier assets comes as yields in the US continue to push higher. The benchmark United States 10-Year yield briefly moved above 1.85% on Tuesday to its highest level in two years.

Fed policy

The impending Federal Reserve tightening appears to be adding to the worries in the market. The Fed has signalled that interest rate increases could begin as early as March due to rising inflation with markets currently pricing in over three 25 basis point hikes this calendar year.

JPMorgan (NYSE:JPM) CEO Jamie Dimon thinks the Fed will tighten even more aggressively through 2022.

“My view is a pretty good chance there will be more than four [rate hikes],” Dimon said on the bank’s earnings conference call last week. “It could be six or seven.”

Treasury to clamp down on crypto adverts

In the UK, the Treasury has announced it plans to strengthen rules on cryptocurrency advertisements and protect consumers from misleading claims.

The consultation response sets out the government’s plan to bring the promotion of cryptoassets within the scope of financial promotions legislation. This means the promotion of qualifying cryptoassets will be subject to Financial Conduct Authority rules in line with the same high standards that other financial promotions such as stocks, shares, and insurance products are held to.

“Cryptoassets can provide exciting new opportunities, offering people new ways to transact and invest – but it’s important that consumers are not being sold products with misleading claims,” UK Chancellor of the Exchequer Rishi Sunak said in a statement. “We are ensuring consumers are protected, while also supporting innovation of the cryptoasset market.”

Technical picture – still bearish?

Bitcoin has been moving below a downward trendline since reaching its all-time high in November last year. Currently, a return above $43,500 would be needed to start testing the descending trendline.

It should also be noted that Bitcoin recorded a ‘death cross’ last week, a historically bearish signal which occurs when the 50-day moving average drops below the 200-day moving average. So far, the pattern has not led to a significant drop. The last time the pattern was observed in Bitcoin was in June last year. Four days after the moving averages crossed, Bitcoin hit a cycle low and remained subdued for around a month before trading higher.

A bullish argument for Bitcoin is that the psychological $40,000 level remains strong support. Bitcoin briefly dropped below there on 10^th January but that prompted some hefty buying interest and the cryptocurrency traded higher shortly after.