- Crypto and stocks remain pressured by the Federal Reserve’s hawkish pivot.
- Some traders think rising rates and tightening policies could drag bitcoin down to the $30k level.
- But they remain bullish over the long term and share what’s on their radars in the meantime.
Bitcoin and ethereum are trading at ranges similar to their price levels last year, but investor sentiment in the crypto market could not be more different this time around.
The euphoria over bitcoin’s swift ascent from $20,000 in December 2020 to $40,000 in January 2021 has been replaced by distress over whether the largest cryptocurrency peaked at $69,000 in November.
Financial markets, which have been fueled by easy monetary policies and massive fiscal stimulus since the onset of the Covid-19 pandemic, are faced with three or four rate hikes this year as the
Federal Reserve
prepares to reduce its $8 trillion bond portfolio. With US inflation at a nearly four-decade high, some economists and strategists are forecasting five or up to seven rate hikes in 2022.
The prospect of
liquidity
withdrawal and tightening policies has clobbered stocks. As of Wednesday’s market close, the S&P 500 had plunged 4.9% year-to-date, while the Nasdaq was down 10.7% from its November 19 peak, officially putting it in a correction.
“We are in a market environment where cryptocurrencies are very much tied to what’s going on with the fundamentals in the traditional financial market space. And that’s kind of what’s dominating price action right now,” Joel Kruger, market strategist at LMAX Group, said in an interview.
As risk appetite diminishes across the board, traders have positioned accordingly. Bitcoin’s risk reversals, which calculate the price differences between puts and calls, have turned positive, signaling growing demand among traders for hedges against potential downward price actions ahead, according to CoinDesk.
Meanwhile, bitcoin’s perpetual futures open interest on all exchanges also surged to a historically elevated level of around 250,000 BTC, which has led to “large pivots in price action” since April 2021, according to a Monday Glassnode research note.
Bitcoin could plunge further to around $30,000 in the near term
For those watching the technicals, bitcoin could fall as low as $30,000 in the near term before resuming an uptrend, according to Armando Aguilar, an independent crypto analyst and ex-Fundstrat digital strategist.
The relative strength index, which shows whether an asset has been overbought or oversold, saw bitcoin hit resistance at the bottom but yet to reach the level of being oversold. Meanwhile, bitcoin’s moving averages are looking for a break higher in order to continue the positive momentum, he explained.
“If we are not able to keep that momentum on RSI and MACD basis, we could see newer lows,” Aguilar said in an interview. “I would not be surprised to see all these indicators coming into play and prompting another major sell-off where we could see bitcoin potentially hitting mid- to even low- $30,000.”
With notable speed bumps ahead, Kruger also sees bitcoin extending to the downside in the coming weeks, but he remains bullish over the medium to long term.
“We should see these markets exceptionally well-supported for the next major breaks to the top side through $100,000 and towards $10,000 respectively when talking about the price of bitcoin and ether, “he said. “I think it’s very possible that we would see a move by the end of the year.”
In the meantime, Aguilar suggests that investors reduce their exposure to volatile price movements by allocating some of their assets into stablecoin-based yield products until the market picks up again.
Altcoins, NFTs, and DeFi
Even at $42,000, bitcoin’s hefty price tag intimidates many retail traders. That has not only eaten away at bitcoin’s dominance in crypto but also sparked the exponential rise of altcoins in 2021.
So far this year, investors have shifted to even smaller-cap altcoins that have not surged a hundred fold in the past year. The two tokens on Aguilar’s radar right now are near (NEAR) and fantom (FTM).
The NEAR token, which was trading at $17, fell 6% over the past week but was up 607% in the last year. The FTM token, which was changing hands at $2.89, surged 12% and 9,669% in the past week and year, respectively, according to CoinGecko pricing.
Altcoin picks aside, it is the big trends that get institutional investors such as Paul Eisma excited. The head of trading at crypto finance firm XBTO is keeping a close eye on non-fungible tokens and decentralized finance this year.
NFTs have been a bright spot amid the crypto market whipsaws. The largest NFT marketplace OpenSea received over $2 billion of ethereum in the first two weeks of January and is on track for a record-setting month of Ethereum NFT trading volume, according to Arcane Research.
Amid the rise of NFTs, DeFi quietly grew its total value locked from over $18 billion in January 2021 to $239 billion at the end of last year, according to DeFi Llama. Eisma is positive about the growth of NFTs and DeFi because they represent the gateways to onboarding a significant number of users to crypto.
“DeFi is going to be huge in 2022 and NFTs are not going away,” Eisma said in an interview. “When non-crypto people begin using the technology without knowing what the underlying basis is, that’s when you speed up the involvement.”