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Bitcoin tumbles to 2-month low, decoupling from recent catalysts – Cryptocurrency News
May 12, 2023 12:27 pmVideo
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This week has been eventful for Bitcoin and the broader crypto space, with the king of digital assets sliding to a fresh two-month low on Friday as its correlation with traditional risky assets seems to have broken. Moreover, the latest banking turmoil failed to trigger gains in cryptos, suggesting that the systemic events and regulatory woes continue to undermine investor sentiment. Is the 2023 rally starting to fizzle?
Crypto industry suffers from idiosyncratic risks
Bitcoin is around 5% down this week due to a wide range of factors. On Monday, the world’s biggest exchange, Binance, paused Bitcoin withdrawals, citing a large volume of pending transactions after an unexpected surge in transaction fees. Even though there was not a systemic threat behind this temporary halt, it was enough to cause some panic and trigger a mild sell-off in the broader sector.
Later in the week, news emerged that two leading crypto market-making firms, Jane Group and Jump Crypto, are scaling back their plans regarding digital-asset trading in the US as regulatory crackdown in the sector persists. It is obvious that the ongoing regulatory assault has resulted in more and more institutional investors withdrawing their funds from the nascent crypto industry. In turn, this has caused significant volatility in the absence of high liquidity and stable exchanges.
Therefore, cryptocurrencies might start exhibiting even wilder swings as long as long as established market makers exit the industry, while the remaining ones keep facing operational challenges. This emerging pessimism is also reflected in the famous Crypto Fear & Greed Index, which dropped below its 50-neutral mark for the first time since March 13.
Bitcoin trends abate
Since the beginning of the year, we have seen Bitcoin trading in lock step with major US indices, especially with the tech-heavy Nasdaq 100, gaining on the back of increasing rate cut expectations by the Fed. This was also evident during this week as Bitcoin edged higher after the softer-than-expected US inflation print on Wednesday. Surprisingly, cryptos quickly surrendered those gains and retraced lower despite tech stocks extending their advance, hinting that their strong positive correlation is fading.
In addition, the broader crypto space failed for the first time to capitalise on banking contagion fears. Specifically, a significant outflow of deposits from PacWest Bancorp did not trigger any demand for cryptos, suggesting that investors now appear hesitant on Bitcoin’s status as a safe money-storage alternative. Moving forward, it would be interesting to see how crypto prices react around the negotiations period for the resolution of the debt ceiling crisis in the US.
Bearish pattern on sight
Taking a technical look at BTCUSD, things are not looking that great after the price’s retreat to a fresh two-month low. The king of cryptos is on track to extend its structure of lower highs, while its profound break below the 50-day simple moving average is painting a gloomy short-term picture.
If the recent drop extends, the price could test the previous resistance of $25,250, which may serve as support in the future. A break below that level could open the door for the February bottom of $21,375.
On the flipside, bullish actions could propel the price towards the $26,945 hurdle. Breaching this zone, the bulls may then target the crucial 50-day SMA, currently around $28,500.
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