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Bitcoin set to test US$40K again; where next?


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The US$40K mark is a key level for Bitcoin, and a break from its current range could see a big move down or back up. Expect volatility to continue until a clear direction is set.

Bitcoin (BTC) is teetering on a key level of support, as it once again falls near the US$40K mark. This is an important level from a technical analysis perspective, given it’s acted as both support and resistance several times over the past year.

It’s the technical level where buyers have stepped in on several occasions to bid the price back up. It’s led to range-bound trading, with sellers then outnumbering buyers at around US$45K–US$47K range.

Bulls will be buying near US$40K and bears selling; we're waiting for one to outnumber the other enough to bring Bitcoin out of the range. If bears succeed in bringing the price down, the next level of support might come around the US$35K–US$37K range.

The price of Bitcoin fell below the US$41,000 level Thursday afternoon US time. At the time of this writing, Bitcoin was trading at US$40,653.60.

Rates hikes, global tensions, no spot Bitcoin ETF in sight

So what’s keeping Bitcoin down from its US$68,000 peak set in November? Several factors could be in play.

  • The Federal Open Market Committee (FOMC) on Wednesday released the minutes to its January 25–26 meeting, in which members agreed it would “soon be appropriate” to begin raising interest rates.
    Markets have been on edge over the past few months as soaring inflation and hawkish talk from Fed officials has caused investors to reprice technology and high growth stocks and speculative assets like cryptocurrency.
  • Markets have also reacted badly to uncertainty about whether Russia will invade Ukraine and the response that could elicit from the world.
  • In Canada, ​​the Ontario Provincial Police and Royal Canadian Mounted Police on Thursday stepped in to stop transactions from 34 crypto wallets tied to funding trucker-led protests in the country, according to CoinDesk. Donors have sent more than 20 bitcoin to the addresses, worth over $870,000. Under the Emergencies Act invoked by Canadian Prime Minister Justin Trudeau, Canada is broadening the scope of the country's anti-money laundering/anti-terrorist financing rules.
  • The Biden administration is also committed to regulating the crypto sector. The White House is putting together an executive order for cryptocurrencies, expected to come next week, in which Biden will task multiple federal agencies with evaluating the financial stability issues that arise from digital assets like Bitcoin.
  • Separately, Gary Gensler, chair of the US Securities and Exchange Commission (SEC), on Thursday, seemingly hinted that the commission was no closer to approving a Bitcoin spot ETF. While there are several Bitcoin-linked ETFs on the market, they are ETFs based on Bitcoin futures. There’s currently no US-traded exchange-traded fund that is able to directly own Bitcoin.

Where will Bitcoin go next?

All said, Bitcoin and the stock market are moving together more closely now than ever before, so investors looking to escape one slump may not find solace in the other.

Goldman Sachs and Bitcoin advocates say the coin can reach $100K. That could be years away, and would likely require the digital coin to take a larger market share from gold.

The bearish camp, which includes Stifel head of equity strategy Barry Bannister, sees Bitcoin crashing to US$10,000 in 2023.

The $40K mark is an important level for Bitcoin, and a break either way from the recent range could mean a bigger move up or down. If you're investing in cryptocurrency, expect volatility to continue as long as the range holds.

At the time of publication, Matt Miczulski owned BTC.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs comes with a higher risk of losing money rapidly due to leverage. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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