Markets
Midday sell-off leaves cryptocurrencies in the red to end the week, consolidation expected through Q3
(Kitco News) – The crypto market ended the week with more unstable prices, as Bitcoin (Bitcoin) continued to consolidate between $60,000 and $65,000, with flash crashes and unexpected rises keeping derivatives traders guessing about what comes next.
Stocks posted mixed but mostly positive results, with the Dow managing to close its eighth consecutive session with gains, finishing up 0.32%, while the S&P rose 0.16% and the Nasdaq was flat.
“The S&P 500 surpassed the 5,200 mark for the first time since early April, fueled by growing optimism after the Federal Reserve suggested a rate hike might not occur,” said analysts at Secure Digital Markets. “This, coupled with a strong earnings season and weaker labor data, has bolstered investor confidence in equity markets.”
A pullback in the Dollar Index (DXY) also boosted markets, according to analysts at Bitfinex.
“The DXY reached a 6-month peak around 106.48 on May 1, before falling 1.85% from the high following last week’s FOMC meeting, when the US Federal Reserve took a decidedly dovish stance and announced an upcoming reduction in quantitative tightening (QT), the analysts said.
“Non-farm payrolls data in the same week signaled a weaker labor market, further accelerating the dollar’s decline while at the same time driving a move higher across all risk assets, including Bitcoin and the market. of US stocks,” they added. “The reason behind this is that weaker than expected employment data could lead to concerns about the economic slowdown, which could increase the likelihood of interest rate cuts by the Federal Reserve.”
“Lower interest rates or the expectation of rate cuts could lower the yield on U.S. dollar investments, making the dollar less attractive and potentially weakening the DXY,” the analysts noted. “The rise of the dollar has strongly impacted the rise of risk assets and may be correlated with Bitcoin weakness (not the cause behind this, but the correlation is evident), but we believe that sustained strength and a recovery from the lows of the BTC post-FOMC and labor market data and simultaneous dollar weakness are a sign of a new regime that would set us up for a very bullish third and fourth quarter for Bitcoin.”
That said, they warned that they “expect the market to remain uncertain in the short term in a low volatility environment until the actual QT reduction occurs in June.”
Data provided by TradingView shows that Bitcoin suffered a sharp sell-off around midday on Friday, which dropped the top crypto from $63,000 to a low of $60,155, and has been consolidating below $61,000 since then. .
BTC/USD Chart by TradingView
At the time of writing, BTC is trading at $504, down 3.55% on the 24-hour chart.
Expected Short-Term Weakness
“We have been ranging between ~60K and ~64K over the last few weeks and the general trend appears to be consolidation with a downward bias,” said Chris Yin, CEO and co-founder of Plume Network. “So in the short term we will see, but Bitcoin could very well continue to fall for a while, which is natural. Following the BTC halving and after several months of upward-only price action, it is natural to see some cooling, especially with the Fed still not reducing interest rates.”
Yin said exaggerated expectations of rate cuts mean “the market is a little ahead of reality, so naturally there will be some pullback. Furthermore, global macroeconomic instability is also an issue” amid a growing number of global conflicts, “which leads to apprehension and a more expectant approach. Not to mention all the well warnings Gary [Gensler] continues to spread randomly across the crypto landscape.”
“Another thing that’s different this time is that we have the BTC ETF,” he added. ETF flow data shows “that things have cooled in recent weeks and even some net outflows in some weeks, which signals weakness in demand,” which Yin said “could very well [lead to] more disadvantages for a while.”
“But if you zoom out a little bit, you can see historically, after halvings, we cut in the same range for up to 3 months, and after that, we start to see stronger price action upwards,” he noted.
Yin added that “open interest has also been decreasing in recent weeks, which signals the same thing – traders are less optimistic than before, although still in the positive. This just means that there are fewer open long positions than before, signaling that there is some apprehension in the market, although sentiment is still broadly positive.”
He said what people really need to look at is the macro environment.
“First, we are waiting for economic data to improve and signal rate cuts,” he said. “Inflation has been stubbornly high, so when it cools, Jerome Powell may finally cut rates. The minute this happens, we will see a reversal in all of these indicators – BTC ETF flows will return, traders will feel comfortable taking risks again, and prices will rise.”
“In parallel, the US elections in November will be a big indicator as Trump has been signaling that he is positive on crypto versus the Biden administration, which is clearly very negative” on the asset class. “So if Trump wins, we go up and if Biden looks like he’s winning, things get a little more reserved.”
Altcoins slide into the red
Most altcoins in the top 200 followed Bitcoin’s downward lead, although about two dozen managed to avoid the sell-off and post gains on Friday.
Daily cryptocurrency market performance. Source: Coin360
Akash Network (AKT) was the best performer, gaining 14.6% to trade at $5.93, followed by a 6.4% rise for Jito (JTO) and a 5.3% gain for ZetaChain (ZETA ). ssv.network (SSV) was the biggest loser, falling 17.5%, while cat in a dogs world (MEW) lost 11.6% and AIOZ Network (AIOZ) fell 8.2%.
The total cryptocurrency market value is now $2.25 trillion and Bitcoin’s dominance rate is 53.2%.
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