InstaForex

October 28, 2021

Bitcoin plummeted by $ 5,000. Is this just the beginning?

 For the last few days, Bitcoin has been actively falling. It was already mentioned earlier that the current technical analysis gives a more or less accurate picture of what is happening in the cryptocurrency market. The most important event was the breakdown of the upward trend line, which has already made one think about the end of the next "bullish" trend. Yesterday, the main digital asset fell below the Ichimoku cloud on the four-hour timeframe. It is worth noting that these two points are very important, but at the same time, they can be vague.


Now, let's take a look at them in more detail. From a technical point of view, a downward trend has now begun, with the $56,500 level as the first target. However, it can be recalled that BTC has grown by $ 25,000 recently, so a drop of even $ 10,000 falls under the concept of "correction". In addition, it is still very difficult to understand what caused such strong growth and updating of historical highs. Fundamentally speaking, such important events simply did not happen for bitcoin to rise by $ 25,000, even though the US Securities and Stock Markets Commission has approved the launch of ETF funds that have made the process of investing in bitcoin even easier and more accessible for institutional investors.


Furthermore, Finance Minister Janet Yellen recently started talking about a new tax on unrealized capital. To put it simply, if one bought bitcoin and is going to keep it on the balance sheet for 10 years, and all this time it will become more expensive, then even if it is not sold, it is still necessary to pay income tax on the growth of the asset. This tax has not yet been introduced, but it is likely to be adopted by American lawmakers. What will happen? There will be a drop in demand for bitcoin, as investments in it will become much less attractive. It should be understood that no asset can go up in price forever. There are some limits to its value. But if the Fed is forever printing money and sending it to the economy, then Bitcoin and US stock indexes can also grow eternally. However, the Fed may soon begin to fight inflation by curtailing the QE program. That is, some investors will leave the cryptocurrency market in search of less risky assets amid lower inflation. The cash flow to the cryptocurrency market will weaken, as the flow of money from the Fed into the economy will begin to decrease. All this can lead to Bitcoin's new deep correction, and even to its "bearish" trend, which was already expected a few months ago.


The current growth of this cryptocurrency is most similar to another hype and an attempt to earn as much as possible until the Fed curtailed QE and introduced new taxes on cryptocurrency transactions and unrealized capital.


The trend on the four-hour timeframe shifted to a downward one, as the price consolidated below the Ichimoku cloud. In this case, sales with the target level of $ 56,500 are now relevant. If the bears successfully break through this level, then the quotes of Bitcoin will continue to decline with the target of $ 51,350. In turn, a rebound from the level of $ 56,500 may serve as a basis for new purchases.