Market Analysis

Bitcoin dip below $40K follows Fed signal of a possible fourth rate hike in 2022

BTC’s abrupt drop to $39,650 came after the Federal Reserve floated the prospect of a fourth rate hike in 2022.

Global financial markets, stocks and cryptocurrencies took a knock on Jan. 10 after rumors that the Federal Reserve may hike interest rates four times in 2022 circulated and sparked a sell-off and sent the benchmark 10-year Treasury yield briefly above 1.8%.

Data from Cointelegraph Markets Pro and TradingView shows that a massive wave of selling broke Bitcoin’s (BTC) support near $42,000, resulting in a plunge to $39,660 before buyers stepped in to buy the perceived dip.

Bitcoin dip below $40K follows Fed signal of a possible fourth rate hike in 2022

BTC/USDT 1-day chart. Source: TradingView

Here’s what analysts are saying about this latest drawdown in BTC and what could possibly come next as analysts watch to see what the impact of the Fed’s easy money policies ending means for risk-on assets.

A shrinking money supply is bad for Bitcoin

The Fed’s shifting monetary policy is generating significant challenges for risk-on assets but this was anticipated by analysts at Delphi Digital who noted that the headwinds facing BTC and the crypto market have more to do with “tighter liquidity conditions and heightened market volatility” than with rate hikes.

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According to Delphi Digital, “the macro tailwinds that helped propel BTC and crypto assets to new highs over the last 12–18 months have reversed course” as highlighted in the following chart showing that the global M2 supply topped out near March of 2021 and has been on the decline since then.

Bitcoin dip below $40K follows Fed signal of a possible fourth rate hike in 2022

Bitcoin price vs. Global M2 Supply. Source: Delphi Digital

The peak in M2 supply came around the same time that Bitcoin set a new all-time high in early 2021 and was followed by a drawdown below $30,000 over the next couple of months.

Despite the late 2021 resurgence in BTC which once again established a new high at $68,789 in November, the continued drop in M2 supply has taken its toll on the market, which has been exasperated by the Fed sharing its plan to accelerate its timeline for raising interest rates.

Delphi Digital said,

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The overall cryptocurrency market cap now stands at $1.192 trillion and Bitcoin’s dominance rate is 40.9%.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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