Amid a bear market, liquidity cuts, and a key rate hike, Bitcoin managed to rise by 5% in a few days. The asset reached a swing high of $31,500, but subsequently made a false breakout of the upper boundary of the resistance zone. This attempt to start the upward movement can be called a market reaction to the total pessimism, which has spread over the whole industry after the collapse of Luna. However, the upward correction had little effect on the overall situation, and Bitcoin is continuing to decline.
Apparently, this is mainly due to the start of the Fed's quantitative easing program. In June, the regulator is planning to withdraw $45 billion, and starting from July, the volume of withdrawn liquidity will reach $95 billion. Under such conditions, we saw a strong drop in buying activity, which triggered a false breakout at the level of $31,500 and the formation of the bearish engulfing pattern. The market, like the Fed, does not know what to expect from the implementation of the QA program, so investors are focused on capital protection.
Considering all the above, Bitcoin resumes forming a bearish pattern. At first, there is a decline to a local support level, followed by a short-term flat, which may result in the growth of volatility and price squeeze. Subsequently, there is an impulse breakdown of the triangle pattern followed by a consolidation and a fall. This pattern negatively affects trading activity and fundamental investment in the asset due to spikes in volatility. It also suggests that Bitcoin starts to rise only under certain conditions that arise in a bear market. This means that it is crucial for investors to watch out for other factors in order to successfully invest in BTC.
At the end of May, the uptrend was triggered by a correction in the US dollar index. The DXY reached 104, rebounded, and began to decline to the important support zone at 100. As of June 3, the index has recovered to 101 and is consolidating for further upward movement.
Technical indicators show that the correction is likely to continue. Buying potential is exhausted, and in the medium term, the market is preparing for a breakthrough of the level of 100 and a further decline. But the window of opportunity for Bitcoin closed on June 1 with the start of the quantitative easing program, and therefore it failed to take full advantage of the local correction in the DXY.
The drop in interest in the US dollar may be due not only to its overbought nature but also to fundamental factors. The US government and president fear that the transfer of frozen dollar assets to the Russian Federation would do a disservice to the United States by questioning the status of the USD as a safe-haven asset.
With stagflation looming and steadily accelerated by developed country central banks, the US dollar may be an unattractive asset. In that case, Bitcoin could get another package of opportunities at the expense of its scarcity and the growing buying sentiment in Europe. However, this requires a constant investment boost, and the only source of that right now is venture capital investment.
It is venture capital investment that helps the cryptocurrency market and Bitcoin stay afloat. Over the last week, more than $80 million was injected into BTC-based products. The main investments came from Europe and are associated with the inflation crisis, which turns into economic stagnation. However, JPMorgan experts assume that the worsening crisis will have a negative impact on the venture capital market. The Fed's liquidity withdrawal is the first call for future deficits.
Given these factors, investors resort to the most profitable strategy - active accumulation at the local bottoms. This is clearly seen in the charts of the ratio of outflows and inflows of coins to crypto exchanges. The rapid absorption of 80,000 BTC coins sold by LFG also confirms the buying sentiment with long-term targets.
This creates a shortage of BTC and thereby increases its value and its capitalization. The market is approaching uncharted territory, where the main emphasis will be on capital protection. The false breakout of $31,500 was a prerequisite for future processes, the consequences of which we will feel in the near future. Until then, the market is still bearish, complicated by a significant decline in liquidity.