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FED HIGHLIGHTS CRYPTO FRAGILITY AS BITCOIN PLUNGES AND REBOUNDS

Trade Bitcoin Here Your Capital Is At Risk
Updated 20 Jun 2022

Key points:

  • Fed Highlights Crypto Fragility
  • Bitcoin Plunges Though Key Support
  • But Rebounds From Our Target Level

Fed Highlights Crypto Fragility

We all know that, on the whole, the US government is not particularly avid proponents of the blockchain, cryptocurrency, and stablecoin world, and this includes the world’s most significant Central Bank, the US Federal Reserve.

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This has been made all the more evident by the recent release of their twice-annual monetary policy report to Congress. In this report, the Federal Reserve Board have highlighted that the cryptocurrency market is still fragile due to the concentrated nature of the market, the lack of a regulatory framework and the illiquidity of assets. In this report, to be delivered to Congress by Federal Reserve Chair Jerome Powell this week on Wednesday and Thursday, the Board states that, “recent strains experienced in markets for stablecoins…and other digital assets have highlighted the structural fragilities in that rapidly growing sector.”

With a particular nod to the May collapse of the Terra network and stablecoin, TerraUSD, which effectively lost all of its value, the Federal Reserve Board highlighted the “concentrated nature” of the stabelcoin sector. They went on to add, “these vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins.”

Also Read: Best Bitcoin Wallet in the UK

Clearly, crypto and blockchain advocates are not expecting any endorsement from the Fed, but with the current, aggressive bear markets in crypto assets and the ensuing casualties within the industry, the timing of this report from the Federal Reserve Board could not come at a worse time!

Bitcoin Plunges and Rebounds

The cryptocurrency markets collapsed further over the weekend, with both Bitcoin and Ethereum wiping out key support levels we highlighted in our note on Friday, How Low Can We Go? Bearish Bitcoin and Ethereum Targets.

Bitcoin lunged through the psychological and options support at $20K, but also surrendered the previous all-time-high from December 2017 at $19511. This allowed for a plunge on Saturday down to $17601, to hold just above the level we highlighted in our report, the 78.6% Fibonacci retracement of the entire 2019-2021 bull rally at 17380. Subsequently, Bitcoin has posted a strong rebound from here to trade back above the prior breakdown level at $20K.

Is that enough to signal a capitulation and a bottom? Probably in the very short-term, but a better recovery phase must emerge to avoid another downside challenge into June and the summer.