Why “Low” Capitulation Might Hint At More Pain For Bitcoin Price

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The Bitcoin price is stuck in a tight range following yesterday’s U.S. Federal Reserve (Fed) announcement on monetary policy. Macro forces have taken over global markets increasing the correlation across all asset classes.

For a deep dive into how the Fed 75 basis point hike affected the Bitcoin price, and a look into the crypto market’s internal dynamics, check out the analysis from our Editorial Director Tony Spilotro. Link below:

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At the time of writing, the Bitcoin price trades at $18,900 with a 2% and 7% loss in the last 24 hours and 7 days, respectively. The entire crypto top ten by market cap is recording losses on similar time periods with the exception of XRP which continues to trend to the upside with a 29% gain over the past week.

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BTC’s price moving sideways on the 4-hour chart. Source: BTCUSDT Tradingview

Why The Bitcoin Price Needs To See More Capitulation

As NewsBTC reported yesterday, the crypto market has completed every major price catalyzer in the short term with the Ethereum “Merge”. Now, the market is moving in tandem with macroeconomic factors and with traditional markets.

This might provide room for a relief rally or for more downside if major financial indexes trend in one direction or the other. According to Jurrien Timmer, Director of Macro for investment firm Fidelity, there has been “little capitulation” for the S&P 500.

Despite the fact that the equity index has been on a downtrend since reaching an all-time high at 4,819 into its current levels at 3,837, Timmer believes the market has been resilient and might need to see more capitulation before forming a bottom. Via Twitter, the expert said the following sharing the chart below:

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It’s surprising how little capitulation there has been in the market. Yes, the sentiment surveys are all negative, but actual flows have not been. This seems consistent with the lack of volatility in the market (…).

S&P 500 is far from its 2020 lows. Source: Jurrien Timmer via Twitter

The above coincides with analyst Dylan LeClair look into previous Bitcoin cycles. The analyst believes BTC forms a bottom following a “final capitulation” of the mining sector. This event might lead to a crash in the network hashrate, which is yet to be seen. LeClair said:

I believe with macroeconomic conditions as the catalyst, something similar will repeat. We’re not there yet.

Will Bitcoin Re-Test Its 2020 Lows?

But how low can the Bitcoin price and the crypto market crash? The benchmark cryptocurrency is already trading 80% lower than its all-time high, $69,000. This has historically marked a bottom for BTC’s price and has formed a barrier against further downside.

In that sense, rather than a fresh leg down, the cryptocurrency might see more sideways movement across 2022 as the Fed continues to hike interest rates and traditional markets trend to the downside. This thesis might be supported by a potential downside pressure for the U.S. dollar (DXY).

The currency has been trending higher, moving opposite to the Bitcoin price and risk-on assets, but seems to be at a critical resistance area. This might provide the crypto market with room for a relief rally. As seen in the chart below, the DXY Index could be above to see a spike in selling pressure.

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DXY Index (U.S. dollar) coming into resistance. Source: Jackis (@i_am_jackis) via Twitter

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Author: Reynaldo Marquez


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