The crypto market capitalisation just fell below $2 trillion as Bitcoin led other coins lower, driven by multiple factors that we shall elaborate on below.
One of the key factors mentioned by analysts is the inverse correlation between Bitcoin and the US dollar, which has been on an uptrend since March 31, 2022, when the latest Bitcoin pullback started.
Bitcoin was trading at $47,000 and has since lost over $7,000 of its value and was trading at $40,800 at writing. The $40,000 level is a crucial support zone for Bitcoin, and a break below it will bring the $37,719 level into focus, after which the $34,993 level comes into play.
Going back to the fundamental reasons behind Bitcoin’s and the entire cryptocurrency market’s decline, it is clear that a rally in the US dollar is not a good thing for the crypto markets. The dollar’s rally is fueled by the Federal Reserve’s hawkish stance, with some analysts expecting the Fed to hike rates by 50 basis points at its next two meetings.
However, I am of a different opinion. The US Federal Reserve is more likely to abandon its hawkish stance soon than to keep hiking interest rates at the accelerated pace suggested.
The US faces multiple macro trends that will make it difficult for the Fed to keep hiking rates. While the high inflation figures are concerning, the likely negative impact of the rate hikes on the real estate sector and the corporate debt markets poses a much higher threat.
The higher interest rates are also likely to slow down the pace of economic growth in the United States, leading to a contraction in the GDP, making the Fed backtrack on its current hawkish stance.
Another emerging threat to the global economy is the likelihood that Emanuel Macron may not win a second term in office, with Marie Le Pen getting much closer to Macron in the first Presidential election round on Sunday.
Macron won 27% of the vote, with Le Pen garnering 24% of the votes. The second round is scheduled for April 24, 2022, and many will be watching to see if Macron can win a second term, which means that France will maintain the same international policy.
As a nationalist, some fear that Marie Le Pen may not be pro-EU and could steer France towards an exit from the EU similar to what happened in the UK, but first, she has to win the elections.
A lot is going on in the world, including the war between Russia and Ukraine, but one of the most constant determiners of the crypto markets’ performance is the US dollar and Fed policies. A weaker dollar and a Fed that embraces quantitative easing are always good for the crypto markets, and we may get both factors sooner than we think.
*This is not investment advice. Always do your due diligence before making investment decisions.
Bitcoin price chart.
The Bitcoin price has fallen by 12.35% in the past week and is currently resting at the $40,700 support zone.
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Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action trading