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With Increased US Inflation Rate, Bitcoin Price Is Expected To Slide Below $27k

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With Increased US Inflation Rate, Bitcoin Price Is Expected To Slide Below $27k

Bitcoin price has extended its losses after the flagship currency dropped below $30,000 and this price action was seen for the first time since July 2021. The currency did recover a bit trying hard to hold on to $30,000.

However, the world’s first cryptocurrency tanked below $30,000 again just after the news spread that the inflation was much higher than expected.

At the moment, Bitcoin Price is trading at $29,081 with a decrease of 7.24% over the last 24hrs. This fall by Bitcoin follows the US stock futures, the one that crashed after the US CPI data showed that there is an increase of 8.3% in April.

No Sign Of Calmness In CPI Data

Though the CPI reports are lower than that of March which read 8.5% back in March, the data shows that the prices are not cooling down soon and are going to take much longer than expected.

The high inflation reading points out that there will be an increase in interest rates this year done by the US Federal Reserve and other central banks. This action will have a negative impact on the crypto market as well.

Last week’s interest rate hike by the Federal Reserve had already dragged the flagship currency under pressure and with this new development, the Bitcoin price is expected to plunge below $27,000 pushing for more selling pressure.

The surge in inflation is the result of the extended unsecured monetary policy and Russia-Ukraine was.

The Crypto Market to See More Losses

The indicated fear of interest rate hikes by the Federal Reserve was hovering over the crypto market since the start of the year resulting in a 50% drop from the Bitcoin’s all-time high price action.

Today the global cryptocurrency market capitalization has steeped by 12.91% over the last 24hrs trading at $1.24 trillion, decreasing more than $800 billion this year.

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The current scenario will see more pressure on the crypto market as traders will have to adjust and move with increased interest rates this year.

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More Stress For El Salvador As Bitcoin Dips To $29,000

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More Stress For El Salvador As Bitcoin Dips To $29,000

El Salvador has been on the radar of leading financial and economic institutions since it made Bitcoin a legal tender. It has mainly become a spectacle as cryptocurrency supporters and non-supporters alike watch on to see how this plays out. El Salvador which had made good on its bitcoin promise had made multiple BTC purchases at close to the height of the market last year and some this year.

The country now holds at least 2,300 BTC since it made its first purchase in September of 2021. Now that the price of Bitcoin is down significantly since the country had begun buying, how is this playing out for the North American country?

El Salvador And Its Bitcoin

El Salvador had bought another 500 BTC in May after the market had declined to $1.68 trillion. These bitcoins which were purchased at an average price of $30,774 had brought the country’s holdings to 2,301 BTC so far. It would be the lowest price that the country had been able to purchase the digital asset and given that this purchase was only a small part of its larger holdings, the country still remains in loss from its multiple purchases.

Related Reading | Funding Rates Fall To Yearly Lows Following Bitcoin’s Fall Below $29,000

The first time El Salvador had bought some BTC in September, it had been trading above $44,000. What this means is that the digital asset is down about 45% since then. Its entire stash is now worth about $70 million at present prices. So even with the dollar cost averaging method that has seen the country buy BTC at different prices, it is still down 28% from its total purchase value.

BTC falls to $28,000 | Source: BTCUSD on TradingView.com

The move to accept BTC has not only proved controversial on just the bitcoin price side, but it has also affected the country’s ability to receive international aid in the form of loans.

Last year, it was made public that the country had been looking to secure $1.3 billion from the IMF. However, this does not seem likely to happen given that the IMF has expressed its disdain for the adoption of bitcoin as a legal tender. 

It has advised the country to remove the digital asset as an official national currency, citing that this could cause problems for the economy in the long-term, revealing that the current account deficit for El Salvador’s remittance and the external financing-reliant economy is estimated to drift around $2 billion for the next three years. But President Nayib Bukele has turned a deaf ear to this.

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Related Reading | Crypto Carnage Causes Flight To Bitcoin Safe Haven, Dominance Demonstrates

El Salvador is a country that is heavily reliant on remittances from citizens abroad who send money home to loved ones. For this reason, the president has said that BTC will greatly help make these remittances easier and cheaper for its residents.

On the price side, the president is not much bothered by the recent decline either. He has said in the past that he expects the price of the digital asset to reach $100,000 sometime in 2022. If this happens, then the country will be in significant profit from its BTC holdings.

Featured image from Coingape, chart from TradingView.com

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Bitcoin Selling Pressure Continues As Long-Term Holder SOPR Spikes Up

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Bitcoin Selling Pressure Continues As Long-Term Holder SOPR Spikes Up

On-chain data shows the Bitcoin long-term holder SOPR has recently observed spikes, suggesting that this cohort is still continuing to sell.

Bitcoin Long-Term Holder SOPR Spiked Up When Price Crossed $30k

As pointed out by a CryptoQuant post, selling pressure in the market still looks to be high as long-term holders are also looking to sell.

The “spent output profit ratio” is an indicator that tells us whether the overall market is selling Bitcoin at a profit or loss right now.

The metric works by checking the on-chain history of each coin being sold to see what price it last moved at. It then divides the current price (that is, the selling price) with the last price.

When the value of this ratio is greater than one, it means investors are, on an average, selling at a profit at the moment.

On the other hand, values of the indicator less than one imply that the Bitcoin market as a whole is realizing loss currently.

A cohort of BTC investors is the “long-term holder” (LTH) group, who hold their coins for at least 155 days before selling.

Related Reading | Bitcoin Bearish Signal: Whales Ramp Up Dumping

The “LTH SOPR” tells us about profit or loss realization from specifically this group. Here is a chart that shows the trend in this indicator (EMA 144) over the past month:

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It seems like the value of the metric has observed some spikes recently | Source: CryptoQuant

As you can see in the above graph, the Bitcoin long-term holder SOPR (EMA 144) had a couple of spikes in the last few days.

One took place on 13th May, while the other occurred on the 18th. During both these instances, the price had crossed $30k shortly before.

Related Reading | Funding Rates Fall To Yearly Lows Following Bitcoin’s Fall Below $29,000

This means that LTHs have been feeling pressure in the current market to realize their profits as soon as the price reaches above $30k.

Usually, Bitcoin long-term holders are the least likely cohort to sell. So, selling pressure from this group can prove to be bearish for the crypto’s price.

BTC Price

At the time of writing, Bitcoin’s price floats around $29.4k, up 3% in the last seven days. Over the past month, the crypto has lost 28% in value.

The below chart shows the trend in the price of the coin over the last five days.

Looks like the price of the crypto has seen some decline over the past two days | Source: BTCUSD on TradingView

Over the past week, Bitcoin has mostly consolidated around the $30k mark, failing to gain any ground above the mark. As long as selling at the level continues, the crypto won’t be able to make any real recovery.

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Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com

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Analysis

Has Bitcoin staunched its bleeding, or can further downside be expected

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Has Bitcoin staunched its bleeding, or can further downside be expected

Disclaimer: The findings of the following analysis are the sole opinions of the writer and should not be considered investment advice

Could a death cross on the price charts of Bitcoin usher in new lows for the year 2022 for the king of crypto? Alternatively, can news such as Grayscale’s ETF applications to the US SEC and the firm’s confidence in a positive outcome in the next few weeks turn the bearish tide?

The Federal Reserve could continue to increase interest rates, and the effect on the crypto market could be bearish in the weeks to come. The charts also pointed toward another push southward.

BTC- 12 Hour Chart

Source: BTC/USDT on TradingView

As per the charts, we can see that when Bitcoin broke above the $44k mark in February 2022, and simultaneously set a series of higher lows, the technical structure had a bullish bias to it, and it was expected that the $48k would offer stiff resistance to BTC on its way up.

However, upon the rejection at $48k, the $45k nor the $40k demand areas were able to stave off the selling pressure since late March. In April, Bitcoin saw a slow bleed from $45k to $37.9k, and in May there was a free-fall beneath the $40k area, and a drop as far south as the $26k-$27k levels.

This meant that the nearly 18-month range from $29.5k-$64k has been breached. The trading volume of the past couple of weeks was enormous. Although buyers were able to absorb the cascade toward $26k, do they possess the strength to cause a reversal?

Rationale

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Source: BTC/USDT on TradingView

The RSI on the 12-hour chart stood at 39.5, which indicated bearish momentum behind BTC. The 39-42 values have been important in the past, and bulls would be hoping to drive the RSI further higher.

The MACD remained beneath the zero line and its bullish crossover suggested weakening bearish momentum. Yet, the OBV saw a severe dip in May, and another such drop can not be overruled. The CMF also pushed above -0.05 recently but it has remained below this mark for a good portion of the past six weeks, showing significant capital flow out of the market.

Conclusion

The $30k and the $24k area could be great opportunities to buy Bitcoin for a long-term investor. However, another drop below the $30k mark can not yet be ruled out, and investors must make plans for such a price drop.

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