Source: PaxForex Premium Analytics Portal, Fundamental Insight
Bitcoin dropped below $29,000 yesterday. According to CoinMarketCap, it fell to $28,170 in the afternoon, lower than at any time in 2021. While bitcoin fell about 8% in 24 hours, some leading altcoins fell even more. Last year's cryptocurrency Solana (SOL) fell more than 30%, bringing its year-to-date drop to nearly 75%.
The biggest factor affecting cryptocurrency prices is the impact of economic policy tightening measures aimed at reducing inflation. Last week, the U.S. Federal Reserve raised interest rates by 0.50%, the largest increase in 20 years. This caused concern in the cryptocurrency and stock markets as investors began exiting riskier asset classes.
But some additional factors are affecting cryptocurrency prices today. Here are a few of them:
- Inflation
Yesterday, the latest Consumer Price Index (CPI) data was announced. They showed a slight decline in inflation, but the figure is still close to 40-year highs. The inflation rate for April was 8.3%, down slightly from 8.5% in March. However, economists had hoped for a larger decline. Cryptocurrency prices fell on fears that the Federal Reserve might respond to still-high inflation rates by imposing even tighter measures.
Inflation is part of a broader economic and geopolitical backdrop that is pushing investors into a safer environment. There is concern that drastic measures to curb inflation could trigger a recession, pushing stock prices and cryptocurrencies down even further.
- The LUNA Collapse
Terra's LUNA has fallen 98% in the past week after its TerraUSD (UST) stablecoin repeatedly lost its peg during the recent market turmoil. The collapse of a relatively well-established cryptocurrency, especially one that has risen rapidly in recent months, has severely shaken investor confidence. It has also raised questions about the stability of stablecoins and the lack of consumer protection.
Authorities have been pushing for increased regulation of stablecoins for some time. Terra's rapid collapse could accelerate that process and give lawmakers more reason to tighten the regulation of stablecoins.
It's one thing to know that cryptocurrency is a high-risk investment, it's quite another to see the value of your portfolio decline by 50% or more. Cryptocurrencies are volatile, and these ups and downs are part of the "roller coaster" of crypto investing. But that doesn't make these steep drops any easier to perceive.
It also doesn't help that cryptocurrencies don't have the same track record as other assets. For example, investors in stocks may look for reassurance in the long history of prices, which shows that stocks have always eventually recovered from such lows. We only have a 13-year history of bitcoin prices - although, during that time, the leading cryptocurrency has always bounced back and made new highs.
In the short term, investors should prepare for further potential losses. Bitcoin can rally, but it can also fall further, and it's best to prepare for the more bad news. Some investors see these drops as an opportunity to buy the cryptocurrency at a reduced price, but that depends a lot on your personal situation. If you only invest money you can afford to lose and are comfortable with the possibility of further price declines, it may make sense.
Some investors may be considering cutting their losses and selling. This is understandable. However, panic selling at a low level will only perpetuate your losses. If you sell now, you won't be able to capitalize on a possible recovery. If you still believe bitcoin has potential, now is the time to maintain that confidence and look to the long term.
It's not easy to watch your investment lose value, especially when many analysts are predicting further deterioration in the market. Many of last year's outstanding gains have already been erased, and there are no guarantees as to what will happen now. However, panic selling rarely leads to good results. Take a step back and think about why you originally bought bitcoin. If your thoughts are still correct, it may help you hold on, even if it is the beginning of crypto-winter.
As long as the price is above the 38000.00 level, follow the recommendations below:
Time frame: D1
As long as the price is below 34300.00, follow the recommendations below:
- Recommendation: long position
- Entry point: 27040.00
- Take Profit 1: 25000.00
- Take profit 2: 23000.00
Alternative scenario:
If the level of 34300.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 34300.00
- Take Profit 1: 41800.00
- Take Profit 2: 45600.00
