Why Bitcoin is such a brutal week

Why Bitcoin is such a brutal week

2022 has been a tough year for bitcoin so far. An 11% drop in price in the past week, and 17.5% in the past two weeks, left bitcoin below $ 42,000 for the first time since September.

How to explain such a market plunge that also resulted in double digit percentage losses for Bitcoin? Ethereum, Solana, Terra, and other major altcoins?

Is it Kazakhstan, which accounts for 18% of the bitcoin hashrate after China broke down on cryptocurrency mining, before the country cut its internet service this week? Is it the Federal Reserve, which is preparing for a new financial crisis? should interest rate hikes slow down economic growth?

In the middle of the week, Arcane Research noted that things already seemed to be getting more complicated for Bitcoin and cryptocurrencies. ” Bitcoin trading activity has been extremely low since Christmas, with low spot numbers and volatility“, In his weekly report published on 4 January. ” The low volatility manifested itself in a slow and steady decline in the price of bitcoin. »

Speculators have started to move towards leverage trading, where people borrow money to bet on the future price. In this case, bitcoin was mostly people long, which means they expected the price to rise.

It didn’t work for everyone. Daily liquidations hit $ 250 million over major derivatives markets on Jan. 5, according to Coinglass, their highest level in just over a month. Liquidation means that the exchange closes the trader’s position and takes their collateral – in this case, bitcoin – because the price has moved in the wrong direction and they no longer have enough assets to keep the contract open.

Liquidations can push prices into a downward spiral as people sell their jobs. This coincided with the release of the minutes of the U.S. Federal Reserve meeting, which indicate that interest rates are likely to rise in March. Which means that nutritionists intend to curb inflation by making it more expensive to borrow money. The report led to a decline in the “ dangerous markets“, Including stocks, bonds and cryptocurrencies. ” Fresh money is usually put to work early in the new year across all asset classes, although investors will be cautious and measured in their levels and timing because of these current economic ones.“, he confirmed.

Not everything is grim, though. Glassnode, in a report this week, said it expects the price measure to remain “sideways” for some time. But behind the scenes, things are changing.

While onchain activity shows moderate anemic demand from smallholders, coin dormancy remains significant, and there are still smarter and more patient money-raising signals. [sic], He also says that more than three-quarters of the coins are in a wallet. illiquid“. To make a move, most holders sit still, hold BTC, and wait for a potential market. In doing so, supply is gradually reduced, stimulating demand and, therefore, prices.

Source: Glassnode

So today we are in a wait – and – see market, looking to take a new direction for 2022, it is an unprecedented situation for the crypto market, and as it reaches maturity, there will be a tendency to continue the other major markets.

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