Bitcoin slips below $27,000 as topping pattern completes

  • BTCUSD
    (${instrument.percentChange}%)

Liquidity Providers Quit Market

The release of CPI data reinforced beliefs that the Federal Reserve could avoid raising interest rates in an effort to combat inflation. This could be beneficial for cryptocurrencies as they are sensitive to risk and typically experience lower demand when interest rates are high.

However, bitcoin declined below $27,000 as investors considered news of reduced crypto-trading businesses from two major institutional liquidity providers in the U.S. Bloomberg recently reported that Jane Street and Jump Crypto, two of the largest crypto market makers, are stepping back from crypto trading in the U.S. due to the country's regulators cracking down on the industry.

Larger price swings due to reduced liquidity from major market makers is now a risk. This lack of liquidity was further exacerbated by the closure of Silvergate and Signature Bank, which operated the two primary fiat onramps into the crypto market.

Bitcoin has been unable to surpass the $30,000 level since hitting it a month ago, and it has been hovering between that threshold and the upper part of the $26,000 level.

Daily Analysis


Source: www.tradingview.com

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  • The daily bitcoin timeframe has charted a head and shoulders top.
  • This is a reversal pattern and is bearish.
  • BTCUSD has broken the neckline to the downside, completing the pattern.
  • The pattern's downside target $23,620.
  • Bitcoin's RSI is on the bearish side of 50.
  • The longer it maintains this position, the greater the likelihood of the pattern target being hit.

Weekly Analysis


Source: www.tradingview.com

  • Despite the daily reversal pattern, the longer-term weekly has charted a series of rising troughs followed by rising peaks.
  • This denotes a primary uptrend.
  • In this framework, if the daily head and shoulder's target of $23,620 is hit, the pattern of rising roughs followed by rising peaks will not have been disrupted.
  • Thus, the current daily weakness may be a corrective leg in the larger trend.
  • In this regard, the weekly RSI is on the bullish side of 50 (green rectangle).
  • The longer the RSI maintains this position, the greater the likelihood of bullish momentum supporting the longer-term bitcoin price.

Summary

  • CPI data suggests the Fed may pause interest rate hikes.
  • This is beneficial to cryptocurrencies and bitcoin.
  • However, two institutional liquidity providers have stepped back from trading due to regulatory concerns.
  • This may increase price fluctuations.
  • The daily chart has a topping pattern.
  • The pattern's target is $23,620.
  • This is not disruptive to the primary trend's rising troughs and peaks.
  • Thus, the current weakness may be corrective in nature, given the CPI data.

References:

www.bloomberg.com

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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