Bitcoin Sees Weakness at $29K as Traders Assess Fed Minutes

The largest cryptocurrency dropped below a support level in the past 24 hours before recovering.

AccessTimeIconMay 26, 2022 at 11:07 a.m. UTC
Updated May 26, 2022 at 5:38 p.m. UTC

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

Bitcoin (BTC) temporarily lost, then recovered above, the $29,000 support level in European trading hours on Thursday, setting the tone for other major cryptocurrencies, data showed.

The price dip followed a relatively positive market response to Wednesday's release of minutes of the U.S. Federal Reserve meeting held on May 3-4. The S&P 500 added nearly 1% and the tech-heavy Nasdaq ended the day 1.91% higher. In Europe, the Stoxx 600 and Germany’s DAX both gained about 0.4% on Thursday.

CoinDesk - Unknown

Bitcoin has traded in a tight range over the past few weeks. (TradingView)

The minutes showed the agency was willing to be flexible on plans to increase rates and tighten monetary policy. Previously, Chair Jerome Powell said the Fed would take an “aggressive” stance – which traders feared would lead to inflation.

The Fed raised the official U.S. interest rate by half a percentage point earlier in May. It plans to reduce the size of its balance sheet by $47.5 billion a month for three months and up to $95 billion a month starting in September, as previously reported.

“Inflation is much too high, and we understand the hardship it is causing,” Powell said at the time. “We’re moving expeditiously to bring it back down.” At the time, the comments contributed to a fall in broader markets and spread to crypto.

U.S. inflation has surged to its highest in four decades and is closely tracked by bitcoin (BTC) traders because the asset seen by many as a hedge against rising consumer prices.

Bitcoin, however, remains bearish. It has lost value for each of the the past eight weeks – a first in its history – while futures and options data indicate traders are positioning for a further drop.

An indicator tracking portfolio hedge reached a 12-month high this week, while yields on a popular trade involving bitcoin and ether (ETH) fell to lows.

Expect volatility ahead

Some analysts say bitcoin’s current range between $29,000 to $30,000 could be breached in coming weeks and the asset could become more volatile.

“We caution that this current reduction in volatility risks turning into an explosion in the near term, potentially setting off momentum for a few days or weeks,” said Alex Kuptsikevich, a market analyst at FxPro, in an email to CoinDesk.

“A formal break of consolidation beyond the previous local extremes, which are located at $30,200 and $29,300, in a sharp move would trigger a wave of liquidation of positions,” Kuptsikevich said. Liquidations typically cause sudden movement of prices as traders cover their positions to protect against losses.

Other observers say the range is part of consolidation in the broader market.

“Following the crypto industry-wide sell-off with the demise of the LUNA network last week, markets have entered a period of consolidation,” said Will Hamilton, a trader at crypto fund Trovio, in a note to CoinDesk.

“Rotation has continued within the stablecoin market as a further $1Bn in USDT redemptions has been absorbed by USDC and BUSD,” Hamilton said, suggesting traders are not entirely exiting the crypto market.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

CoinDesk - Unknown

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

Trending

1
CoinDesk - Unknown
Three Arrows Capital Files for Bankruptcy in New York Tied to British Virgin Islands Proceeding

A British Virgin Islands court ordered Three Arrows' BVI branch into liquidation earlier this week.

CoinDesk - Unknown
2
CoinDesk - Unknown
Cosmos-Builder Ignite Cuts Headcount by More Than 50%, Ex-Employees Say

The reductions come amid a crypto market crash, and after the return of Ignite’s controversial ex-CEO.

CoinDesk - Unknown
3
CoinDesk - Unknown
India's Day Of Reckoning With ‘Most Controversial Crypto Tax’ Is Here

The country's 1% TDS is predicted to exacerbate negative market sentiment and add to the woes of the crypto community.

CoinDesk - Unknown