No action in the crypto market as Bitcoin still trades around the $29,000 to $30,000 area. The first crypto by market cap has been rangebound since the Terra ecosystem collapsed taking a hit on an already soft market.
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The “Black Swan” event has preceded one of the worst periods for the space as Bitcoin and Ethereum recorded record consecutive losses. At the time of writing, BTC’s price trades at $29,500 with a 2% loss in the last 24-hours.
BTC moving sideways on the 4-hour chart. Source: BTCUSD Tradingview
According to a pseudonym trader, Bitcoin could be ready to re-test the lows at $29,000 before resuming its bullish momentum. The trader expects BTC’s price to potentially dip below this level and then bounce back to $35,000.
This would put Bitcoin close to the bottom of its current range. Therefore, a move to the upside and some relief seems logical, if BTC is to continue to trend rangebound.
In that sense, the pseudonym trader recommended to “play the trend” and re-examining if BTC breaks above those levels. The trader said via Twitter:
Before you get discouraged about trading just remember this tiny little range of chop is what’s been so difficult for everyone to figure out. Once a direction is established from here it’ll get easier.
A report from QCP Research agrees that $28,700 is a major area of support, in case of further downside, as it stands as BTC’s current 61.8% Fibonacci retracement level. These Fibonacci levels have been “pivotal”, the report says, for Bitcoin across its history.
Particularly during 2020, when the start of the COVID-19 pandemic sent BTC to test the 61.8% Fibonacci level at around $3,800. This level was held during one of BTC’s worst drawdowns. QCP Research said:
For BTC and ETH, the current drawdown is now identical to the 2020 Covid drawdown. It is possible that we see a short-term bounce from these oversold levels.
In addition, the report claims BTC, and other risk-on assets seem inversely correlated to the media. Whenever “good news” on inflation, unemployment, and other metrics in the U.S. break to the public, these assets seem to trade to the downside.
The opposite happened from 2020 to 2021 as bad news on COVID-19 translated into an economic stimulus. Now, the U.S. Federal Reserve (FED) is determined to stop inflation and has begun removing liquidity from global markets while it launches its Quantitative Tightening (QT) program.
This will force the institution to unload its balance sheet into global markets. As a result, Bitcoin and stocks will continue to suffer in the coming months, QCP Research believes. The report claimed:
This draining of liquidity will only be exacerbated by the upcoming QT balance sheet unwind as well, beginning 1 June. We expect these factors to weigh on crypto prices.
The current narrative in mainstream media is running on the back of inflation. If it changes to words like “recession” or “economic recession”, the U.S. FED might be forced to slow down on its tightening giving some relief for Bitcoin and stocks, the report claims.
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In other words, if news shifts from bad to worse, Bitcoin could change its direction to the upside. In the meantime, it seems likely to remain rangebound or with short live rallies.