Bitcoin prices fell through critical support levels this Tuesday as traders weighed a flurry of negative on-chain data alongside a stronger-than-anticipated US dollar.
The benchmark cryptocurrency touched an intraday low of $30,830 ahead of the New York opening bell, down 5.48 percent into the day. Its move downside came as a part of an ongoing downside correction that started after BTC/USD topped out near $42,000.
At first, it appeared like a profit-taking sentiment. But Bitcoin’s continued resilience to reclaim levels above $40,000 raised prospects of an overlong consolidation/bearish trend. Meanwhile, a series of on-chain metrics provided by CryptoQuant—a South Korea-based blockchain analytics platform—further confirmed Bitcoin’s downside bias.
For instance, CryptoQuant CEO Ki-Young Ju presented evidence of constant BTC withdrawals from miners’ addresses. That indicated that more and more BTC producers were selling their holdings at current price levels.
We might see green candles in $BTC chart, but those wouldn’t come from institutional investors, it’s from crypto native firms.
Coinbase Premium looks not enough to break key resistance levels.
Without USD spot inflows, no more bull-run.
— Ki Young Ju 주기영 (@ki_young_ju) January 26, 2021
Mr. Ju further complimented his bearish outlook with two more metrics. The first pointed towards an increase in stablecoin deposits across all the cryptocurrency exchanges. That showed traders in a relentless Bitcoin-to-dollar exchanging spree.
Meanwhile, the second metric, which studies the amount of BTC inflows into the Coinbase custodial wallets, noted a drop in the said activity, verifying that fewer institutional traders were buying Bitcoin in the ongoing week.
Dollar Shows Muscles against Bitcoin
Bitcoin’s downside move also appeared against a stronger US dollar outlook.
The greenback recorded choppy gains across the European and Asian trading sessions as traders assessed the prospect of delays in the US President Joe Biden’s $1.9 trillion stimulus package proposal. Meanwhile, rising worries over the new UK and South Africa coronavirus strains are also expected to raise the dollar’s safe-haven appeal.
Bitcoin tends to trend inversely to the dollar.
The negative correlation between the two assets surged primarily after the March 2020’s global market rout. Traders continue to treat a falling US dollar as a cue to enter riskier safe-haven markets. That additionally explains why the Bitcoin price fell during the Tuesday session.
Promising News Ahead: Fed Meeting
In their recent statements, the Federal Reserve officials have committed to keeping their expansionary policies intact until they achieve inflation above 2 percent and maximum employment.
The US central bank expects to maintain its dovish tone as its official meets for their first policy meeting of 2021 on Wednesday. That is particularly bullish for Bitcoin as more investors tend to purchase it against the Fed’s unlimited bond-buying (which keeps the Treasury yields lower) and near-zero interest rates.
Long USD / short #BTC is betting against the Fed.
Don’t bet against the Fed.
— Probably Not an Impersonator of Pierre Rochard (@pierre_rochard) January 25, 2021
Source: Bitcoin Experiences Sell-Off ahead of Fed’s January Meeting