Bitrue Weekly Market Report: Bitcoin is breaking support, how low can it go?
Market Overview:
- US layoffs and hiring freezes have made investors panic as they are watching companies’ Q2 financial reports.
- A Steep increase in corporate bond yield as investor weighing in higher default rate
- European Union agrees to regulated the crypto market; Bitcoin dipped below the $20,000
As inflation has been the broader market issue these days, investors are worried, especially during the coming Q2 Earnings Reports. Rising material and labor costs can lower companies’ margins, and if those increased costs are not directly passed to the consumer, it can burden the company’s profitability. Companies have started to layoff their employees as one of the options to cut costs and to stay afloat during this economic downturn. Increasing layoffs number during these past weeks, is certainly not a good sign of Q2 earning reports.
Per May 2022 reading, The Moody’s Baa Corporate Bond Yield is 5.12%, around two-third increase from the beginning of the year. This is partially caused by the rising Federal Fund Rate, and also higher probability of a company to default on its debt payment, or so-called Default Rate. As money becomes more and more expensive, investors are worried that cash flow will dry out and the company will become insolvent. Companies’ earning forecast and macro economic outlook will be the important factor here to determine the default rate projection. A higher reading will make skeptical investors pull out their money by selling those corporate bonds which will disturbed the bond market and aggravate the loss on the equity side.
Government seems to have once again tried to rule the world of crypto. This time, the European Union agrees to regulate the crypto market under its new MICA (Market in Crypto Assets) Law. MICA Law will likely focus on consumer protection rule, energy consumption, anti-money laundering, and supervision of crypto trading. EU state’s ESMA (European Securities and Market Authority) will be responsible in the process of making and enforcing these rules once they become available. Later in the afternoon, Bitcoin seems to drop once again below the $20,000 price level after the news came out. It has traded around $19,000 since then.
Bitcoin is breaking support, How low can it go?
BTC has dropped below its strong support level during the Thursday trading session. It tried to reclaim that level the next day, but it seems like the buyers are not there yet. The drop was also accompanied by a spike in trading volume, and BTC has traded below the $20,000 mark since then. The next level to watch will be this year’s low of $17,600 in June, if the price breaks that support, it is expected to reach the $16,000 level as the next support since November 2020. Current macro economic outlook hasn’t showing any sign of possible reversal, so BTC will likely to stay in the current bearish market.
ETH is currently trading in an ascending price channel between $1,000 to $1,300 price level. Although there is a forming minor price action of potential break to the downside, it still managed to stay above $1000 level, for now. It is showing the same price pattern before the big drop in June. The price formed a Bearish pennant pattern, with decreasing price volatility and trading volume. The price finally dropped on June 10th coincided with interest rate hike news. This time, with almost the same set up, ETH is waiting for any possible catalyst to move the price. Any bad news can possibly mimic the same drop in June.
