Bitcoin is back in the red and fails to break $40,000 at the end of a black month for 'cryptos'
Bitcoin fell 3% during the last 24 hours, while investors are still imbued with fear and do not dare to jump into purchases and raise the most traded of digital assets to $40,000, so that the technical pattern that points to a 'pull-back' to the former support, now turned into resistance, is fulfilled. The world's largest cryptocurrency left a high over the weekend at around $38,500, to return to declines, but narrows its trading range, which is now between $37,000 and the aforementioned top. However, analysts indicate that investor sentiment is still dominated by fear following the market's performance just a week ago.
Bitcoin´s price (BTC) holds losses of 22% so far in 2022, and is down 46% from its all-time high on November 10th and is on track to close out its worst month since the spring of 2020. With investors selling most risk assets in preparation for the U.S. Federal Reserve's (Fed) likely interest rate hikes as soon as March, the digital currency's Fear and Greed Index remains in the "fear zone," despite price action that appears to be trying to consolidate recent moves.
"This week we will remain in this broad consolidation range between $34,000 and $40,000," commented Edward Moya, an analyst at Oanda. "The daily chart shows that BTC price has created a long lower wick followed by a long upper wick. These two candles now offer an area of support and resistance, where buyers and sellers are placing most of their orders," added Alejandro Zala, a country manager at Bitpanda.
Both the cryptocurrency market and equity benchmarks have fallen from highs as the economy has been hit by some difficulties. In addition to the economic burden imposed by the pandemic, new monetary policies and inflation have also negatively affected the markets. Socio-political issues are also contributing to the bearish and generally pessimistic economic environment.
Currently, tensions between Russia and Ukraine, conflicts in the Middle East and the uneasy relationship between the U.S. and China are negatively affecting market sentiment. Fed monetary policy, debates and regulatory activities also represent key factors for market sentiment. Overall, the most prominent news on the topic has been the ban on the use and mining of cryptocurrencies proposed by Russia's central bank.
"A 50% drop is not as significant as we have seen in previous years, but it is significant now, making it more concerning. The real support level seems to be around the $30,000 level, where we tested it in May following the ban on Bitcoin mining in China," noted Simon Peters, analyst at eToro.
CoinShares' weekly digital asset fund flows report helps provide a sharper picture of inflows and outflows in and out of cryptocurrencies. After five weeks of general flight, the week ending January 21st finally saw slight inflows. However, not all flows were equal. While Bitcoin saw inflows of around $13.8 million, Ethereum saw outflows of $15.6 million.
ETHEREUM OVERCOMES THE RESISTANCE
However, the performance of the second largest cryptocurrency by market capitalization outperforms Bitcoin. After breaking through resistance at $2,500 on Friday in closing prices, it has remained above this price level all weekend, with a high at $2,630. Ether - the Ethereum network unit - is rallying along with the broader cryptocurrency market. "Some take an optimistic outlook on the market situation and believe that these declines represent a good investment opportunity, especially for investors eager to expand their portfolios with major cryptocurrencies," commented Zala.
The technical analysis of Ether, however, points to caution as it is trading with greater declines than Bitcoin, almost 4%, and is at exactly $2,500, its first support level. If this level is breached, the cryptocurrency will head for the $2,470 - $2,450 area and, if it loses this area, it has the potential to fall towards $2,200, the support it slightly breached on January 24th.
The rest of the 'altcoins' are in the red on Monday, with a total capitalization that does not reach $1.7 billion. The Terra token (LUNA) is also suffering, as it gives up an additional 10% and accumulates a fall of 30% during the last seven days. The crypto, one of the most promising of the end of 2021 has lost 60% of its value in the last month. Among the reasons for this plunge are a series of negative news related to the Wonderland project and the cryptobroker QuadrigaCX, which was believed to be a pyramid scam and went bankrupt in 2019.