Relevance up to 10:00 2022-06-08 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
Bitcoin continues to trade within a narrow range of $29k–$31.5k. The coin solidly consolidated and tried to break out of the area, but eventually made a false breakout of the $32.2k level. Subsequently, the asset tried to consolidate in the upper part of the range, but began to decline. And as of June 7, the sellers are in full control of the situation.
The cryptocurrency was traded near the upper border of the channel, but eventually fell like a stone to its lower part. As a result, the price is trading in the area of $28.6k, and on the daily chart, a "bearish engulfing" pattern has formed. It is also extremely important to understand that bears are expanding the usual price movement area. This could mean a further decline, as well as the presence of volumes of liquidity that need to be squeezed out of the bulls.
Technical indicators of the cryptocurrency have made a steep peak and are moving towards the lower boundary of the bullish zone. This indicates the formation of large sales volumes, as well as a sluggish reaction of buyers. Nevertheless, the MACD indicator has resisted and is consolidating sideways. However, clouds are gathering around Bitcoin bulls again, and bears completely seize the initiative. With this in mind, a reasonable question arises: will the previous weeks of consolidation be leveled, and the asset continue to fall?
Let's start with the fundamentals, which are entirely based on Fed policy. Investors are concerned about the pace of monetary tightening, which could lead to a significant slowdown in economic growth. As a result, we saw a preventive reduction in liquidity from market players in order to preserve it and subsequently redistribute it profitably.
This can also be regarded as a definite signal for the Fed about the need to pause in such strict regulation of monetary policy. Fed members have also repeatedly stated the need to return to liberal monetary policy and let the markets breathe. Such a pause would be similar to the recent correction of the US dollar index, which turned out to be a breath of fresh air for the crypto market. But there is every reason to believe that the regulator does not plan to pause, and will continue to tighten monetary policy.
This is evidenced by the statistics on the labor market for May 2022. In May, more than 350,000 jobs were created in the United States. This result was significantly lower than similar indicators in April. At the same time, analysts are confident that inflation will stay in the region of 6%–7%, which leaves the Fed with no way out. At the June meeting, it is planned to increase the key rate by another 50 basis points.
However, it is important to understand that another $45 billion will be withdrawn under the quantitative tightening (QT) program, a significant part of which was injected into the crypto market. If we combine the balance sheet contraction with the effect of the interest rate hike, it turns out that in June the key rate will be raised by 1 basis point. June could become an even more painful month for high-risk assets, even with the partial market adjustment after the May crash.
At the same time, back in May, there was a tendency for long-term investors to sell their stocks. In the short term and psychologically, this is a negative signal that contributes to the growth of bearish sentiment. But from a fundamental point of view, this means the gradual formation of a local bottom. A similar situation was observed in the market in 2014 and 2018. However, it took months for investors to fully form a long-term low. How the situation will develop in 2022 is impossible to predict.
But it is safe to say that the market has passed the worst stage of this bearish trend. In parallel with the capitulation of long-term investors, there is a massive process of accumulation that will be the catalyst for the next bull market. But only long-term hodlers can say for sure how long the period of capitulation + accumulation will take. It is likely that in order to speed up this process, we can expect a local retest of the bottom. Given these developments, Terra's collapse is not to be expected, but volatility surges and sell-offs are more than likely.