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Bitcoin week ahead Ep08: Early Monday sell-off towards $32K spells trouble

Bitcoin week ahead Ep08: Early Monday sell-off towards $32K spells trouble
Image by Gerd Altmann from Pixabay

Yerevan (CoinChapter.com) — Bitcoin dropped to $32,311 during the Asia-Pacific session Monday.

The plunge came as a part of a prevailing downside correction caused by the Federal Reserve’s decision to taper its loose monetary and expansive fiscal policy.

Also read: Bitcoin week ahead Ep07: Let’s focus on the inflation-centric FOMC meeting

Last week, on Wednesday, the US central bank announced that it might raise its benchmark rates from the current 0-0.25% range by the end of 2023. With the announcement, Bitcoin’s appeal as a mythical inflation hedge got hampered.

Bitcoin price drops towards $32,00
Bitcoin price drops towards $32,000. Source: BTCUSD on TradingView.com

The benchmark cryptocurrency’s net losses since Wednesday’s opening rate surged to 19.54% with the early Monday sell-off. Meanwhile, the short-term bearish sentiment also opened possibilities that Bitcoin tests its May 19 bottom target, $30,000, later this week.

Bitcoin against real yields

Another reason why Bitcoin could suffer is a recent rally in real yields. In simple terms, real interest rates adjust the observed market interest rates for the effects of inflation. A declining real yield, therefore, shows investors’ fear of higher inflation. Conversely, a rising one shows that investors expect inflation to drop lower.

Also read: Bitcoin sentiment remains gloomy amid surging demand for Fed reverse repos

Fed’s decision to hike rates by the end of 2023 came in the wake of higher-than-expected inflation data in April and May. The Consumer Price Index (CPI) data for April was 4.2%, and it surged to 5% in May. Now, with the central bank’s hawkish tone, officials expect the inflation readings to drop in the coming monthly sessions ahead.

“Our expectation is that these high inflation readings that we’re seeing now will start to abate.”

— the Fed chair, Jerome H. Powell, said at a news conference on Wednesday.

Assets that don’t generate real returns (for example, gold) tend to suffer during periods of rising real yields. Bitcoin also checks this box.

Events this week

This week is relatively quieter in terms of events. Therefore, Bitcoin prices may not receive any major upside/downside cue from macroeconomic circles.

  • On Tuesday, investors could choose to focus on Powell’s testimony before the US House of Representatives on Fed’s response to the coronavirus pandemic.
  • On Thursday, Bank of England will release its rate decision. Investors could focus on Bitcoin in GBP-terms around the announcement.

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Yashu Gola

Yashu Gola is a Mumbai-based finance journalist. He is profoundly active in the bitcoin space since 2014 – and has contributed to several cryptocurrency media outlets, including CoinChapter, NewsBTC, FxDailyReport, Bitcoinist, and CCN. Academically, Yashu holds a bachelor's in information technology, with majors in data structures and C++ programming language. He has also won the 'Atulya Award' for his efforts towards raising $100,000 for an India-based farming project.

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