Cryptocurrencies sink as market sell off continues

On Wednesday, Bitcoin and Ethereum fell below their key support levels of $30,000 and $2,000 respectively, amid a stock market sell-off. On Tuesday, there were glimpses of returning market risk appetite, supporting cryptocurrencies. Stock markets rebounded, led by tech stocks. Stock markets resumed their descent on Wednesday though, dragging cryptocurrencies down. 

Bitcoin fell below its $30,000 support on Wednesday. If Bitcoin price declines, support may be found near $26,700 and further down at $19,400, while resistance may be found at $40,000 and further up near $48,200. 

Ethereum also declined on Wednesday, trading below the $2,000 level support. If the Ethereum price declines, further support may be found near $1,700, while resistance may be encountered near $3,174.

A strong risk-off sentiment has prevailed over the past few months, driving investors to safer assets and dampening the appeal of cryptocurrencies. In the past six months, the cryptocurrency market has lost almost $2 trillion. A massive sell-off of tech stocks was triggered last week, sending cryptocurrencies into free fall. Most major cryptocurrencies plummeted, as crypto markets have been following the overall trends of stock markets and especially of tech stocks. 

Stablecoin TerraUSD collapsed last week, losing its dollar peg and trading as low as 5 cents, raising fears that other cryptocurrencies will follow in its wake. Luna has also crashed, losing 99% of its value. The Luna Foundation Guard has sold almost all of its recently acquired BTC reserves as the foundation’s Terra collapsed. The LFG sold more than $3 billion in Bitcoin, putting more pressure on the Bitcoin price.

Stablecoin Tether also lost its $1 peg briefly last week after suffering $3 billion in withdrawals, falling to 0.95 before regaining its dollar peg. Tether is the largest of the world’s so-called stable coins and its fall has put to question the digital assets’ stability. If its price continues to fall it may lead to market contagion, exasperating cryptocurrency sell-off.

In the past couple of weeks, the Fed raised its benchmark interest rate by 50 base points, its highest rate hike in 22 years and the BOE also increased its interest rate by 25 bp. The shift of major central banks towards a more hawkish fiscal policy has been putting pressure on cryptocurrencies over the past few months. Most major Central Banks are turning towards a tighter policy and a return to pre-pandemic interest rates, driving cryptocurrency prices down. The dollar reached a 20-year high last week, but softened this week, further boosting the appeal of high-risk assets such as cryptocurrencies. 

BTC/USD 1h Chart

ETH/USD 1h Chart

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: