Bitcoin dip below $40K follows Fed signal of a possible fourth rate hike in 2022

Global financial markets, stocks and cryptocurrency took a hit on January 10 after rumors that the Federal Reserve might raise interest rates four times in 2022 triggered a sell-off and sent the benchmark 10-year Treasury yield briefly above 1.8%.

Data from Cointelegraph Markets Pro and TradingView shows that the massive sell-off smashed Bitcoin (BTC) support near $42,000, sending a drop to $39,660 before buyers stepped in to buy the notable drop.

BTC/USDT 1-day chart. Source: TradingView

Here’s what analysts are saying about this latest BTC dip and what could happen next as analysts watch what the impact of the Federal Reserve’s end of easy money policies will mean for risky assets.

A shrinking money supply is bad for Bitcoin

The Fed’s shifting monetary policy is posing significant challenges for risky assets, but this was to be expected by analysts at Delphi Digital who noted that the headwinds facing Bitcoin and the cryptocurrency market are related to “tighter liquidity conditions and increased market volatility.” Rising prices.

According to Delphi Digital, “the overall tailwind that helped propel BTC and crypto assets to new heights over the past 12-18 months has reversed course” as shown in the following chart showing that the global supply of M2 has crossed around March 2021 and has since now.

Bitcoin price vs M2 global supply. Source: Delphi Digital

The peak in M2 supply came around the same time that Bitcoin hit a new all-time high in early 2021 and was followed by a dip below $30,000 over the next two months.

Despite a resurgence in late 2021 in bitcoin that once again established a new high at $68,789 in November, the continued decline in M2 supply has taken its toll on the market, which has infuriated the Federal Reserve with its plan to speed up its schedule for increased interest rates.

Delphi Digital said,

“The shift away from excess liquidity and accommodative monetary conditions is a structural headwind that we have highlighted in recent months, which now appears to be approaching a peak.”

Talk of higher interest rates also breathed new life into the US dollar, which Delphi Digital noted “doesn’t do much for an asset like BTC, which tends to move inversely with the US dollar.”

BTC/USD vs DXY (inverse). Source: Delphi Digital

Delphi Digital said,

“We continue to emphasize how important the US dollar is in determining the direction of global markets, especially assets tied to the currency depreciation narrative.”

Related: Bitcoin drops below $40k for the first time in 3 months as fear grows

“Good Buying Opportunity”

An analysis of the current chart structure of BTC was provided by the analyst and Twitter user pseudonym “Resolute” who posted the following chart highlighting a 42.5% drop in the price of BTC from its November highs.

BTC/USDT 2-day chart. Source: TradingView

Hazem said,

“A double bottom is envisaged from the September 2020 low, after correcting the rally in the fourth quarter. It is currently trading below the 2d 200 EMA, which has historically been a good buying opportunity.”

Resolute’s observation that this could be a good area for accumulation was echoed by crypto trader and Cointelegraph contributor Michael van de Poppe, who posted the following tweet indicating that he would prefer to open long rather than short in the current market.

The total cryptocurrency market capitalization is now at $1.192 trillion and the Bitcoin dominance rate is 40.9%.

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