Bitcoin posted its eighth consecutive weekly loss for the first time in its history, currently trading in a tight range around the psychological $30,000 mark, more than 50% below its all-time high. The sustained downtrend could be attributed to a barrage of emerging headwinds such as the negative macro environment for risky assets, inflation and growth issues, as well as idiosyncratic risks stemming from the crypto industry. . As 2022 approaches, Bitcoin and the broader crypto market seem to lack the necessary catalysts that could spur growth, but cryptocurrencies have managed to recover from all of their previous slumps. This time is it different?
New decline or impending reversal?
In recent months, investors seem to be moving away from cryptocurrencies and risky assets in general in the face of still high inflation and fears of recession. Any sign that inflationary pressures are not easing would force central banks to put the brakes on economies harder, injecting further downward pressure into the crypto space. Additionally, the collapse of Terra and Luna has heightened uncertainty, while another systemic failure could deal the deathblow to investor interest in the unregulated sphere of cryptocurrencies.
On the other hand, a recent report by the US Federal Reserve Board found that most US crypto investors are trading them for profit, neglecting their use as an alternative payment method. Essentially, the current situation in the crypto markets could endorse a buy-down strategy, which could be further reinforced by speculators joining in to push the market higher and exploit the bull run. Additionally, crypto funds, institutional investors, and asset management firms now have a much larger stake in cryptocurrencies than retail traders, with most of them having entered the market at levels higher. Thus, it is clear that they would do everything in their power to avoid a long-lasting crypto winter.
Congress to introduce first regulatory framework
There are growing threats of regulatory repression hanging over the crypto markets since the collapse of two major altcoins earlier this month. In response to growing calls for regulatory action, U.S. policymakers are expected to introduce a bill that will classify cryptocurrencies as securities or commodities and announce which state agency will be responsible for overseeing them. In addition, the proposed legislation will include provisions covering consumer protection against fraud and tax issues. Undoubtedly, the adoption of a clear and strict regulatory framework for crypto assets will bring a sigh of relief to investors, reducing uncertainty and motivating adoption.
Bitcoin rangebound unable to find new trading momentum
The price of bitcoin has been trading in a tight range over the past week, with the drop in volatility likely suggesting that investors are looking at the current complex market conditions to decide on the future direction of prices.
Should the major central banks tone down their hawkish rhetoric and try to make “softer” landings, the bulls could initially target $31,570, which is the upper bound of Bitcoin’s recent sideways move. Breaking through this barrier, the $34,500 hurdle may turn out to be the next point of resistance.
On the other hand, signals of a faster tightening cycle could send the price to test the recent low of $28,750 before the spotlight shifts to the 2022 low of $25,390.