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Bitcoin edges higher; is the selling over?

Published Jan 25, 2022 10:21 Updated Jan 25, 2022 10:27
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By Samuel Indyk & David Pichodo

Investing.com – The price of Bitcoin staged a rebound late on Monday and early Tuesday morning, in line with US stocks which bounced after the European close on Monday. The Dow Jones Industrial Average had a 1,200 point swing from its low point while the S&P 500 had its biggest intraday bounce since the 2008 global financial crisis.

Similar price action was observed in Bitcoin. After hitting a six-month low earlier on in the trading day, Bitcoin bounced to hit its highest level since dropping below $40,000 on January 21st. Bitcoin rebounded over 13% from its low point on Monday before stabilising around $36,000 on Tuesday.

Is the selling over?

After a dramatic fall and an equally dramatic bounce, some may be thinking that the selling pressure in Bitcoin is over for now.

However, a 13% rise from the low needs to be put in perspective with the drop observed in recent days. A quick view of the daily chart shows that Bitcoin’s rebound does not change the underlying trend, which remains negative.

For now, the chart would suggest that only a return above the major psychological threshold of $40,000 would improve the profile of Bitcoin on daily data. It appears a further decline towards the $30,000 support level is just as likely as a return to $40,000.

Fed meeting in focus

With equities in Europe trading higher this morning, Bitcoin has managed to hold onto gains. Other major cryptocurrencies are also higher. Ethereum is up 4% in the last 24 hours, Cardano up 2.6% and XRP up 3.5%.

However, US equity futures are lower and heightened volatility is expected. Bitcoin has recently shown a strong correlation with US equity markets, particularly the tech-heavy Nasdaq 100.

The Fed meeting on Wednesday could be make or break for equity and crypto markets. The announcement will come at 19:00GMT with a press conference from Chair Jerome Powell 30 minutes later.

The Fed is likely to pave the way for a first 25 basis point hike at its March meeting. However, if the Fed were to be more hawkish than expected, maybe by signalling a larger rate increase or more rate hikes over the current year, then it could spell disaster for Bitcoin. On the other hand, expectations of a hawkish Fed may have already been priced in and the Fed might strike a cautious tone, particularly given the market moves seen in recent days. If that’s the case, then a relief rally may be seen in Bitcoin and other major cryptocurrencies.

Bitcoin

Bitcoin edges higher; is the selling over?
 

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