Bitcoin is showing signs of bullish momentum on lower timeframes. The cryptocurrency managed to stay above its 2017 all-time high, around $20,000, as the U.S Federal Reserve (Fed) announced an increase in interest rates by 75 basis points.
As the financial institution was within expectations, Bitcoin and other risk-on assets were able to see some relief. At the time of writing, the number one crypto by market cap stands at $21,300 with a 3% profit in the last 24 hours.
Data from Glassnode indicates that BTC holders experienced their largest Realized Loss in history as the cryptocurrency failed to remain in its previous range, around $28,600 to $31,500. BTC investors lost over $4.2 billion which, as the on-chain analytic firm claims, “eclipses all major sell-offs in 2021” and 2020.
These losses affected long-term BTC holders (LTH). Unlike speculators and short-term BTC holders, LTHs are often impervious or more resilient to downside price action. This time the selling pressure was too hot and forced these investors to capitulate out of their positions:
Long-Term Holders however realized major losses, equal to 0.007% of the Market Cap per day. This is almost as large as March 2020 and is the first major LTH capitulation event in the 2021-22 cycle.
The downside pressure has been mitigated for the short term. However, if the bears resume their attack, Bitcoin must hold 3 critical levels to prevent a doom scenario.
This could set the cryptocurrency back to its 2020 levels and trigger an even bigger capitulation event. According to Whalemap, BTC’s price must stay above $19,100, $16,100, and $14,000 to prevent this scenario.
Conversely, the capitalization event described by Glassnode has pushed BTC’s price into its Realized Price zone. As Whalemap added, every time BTC’s price has touched this level, as the chart below shows, the cryptocurrency is able to bounce back to previous highs.
Trading desk Cumberland believes the global financial markets are “steadily grinding lower”. The U.S. Fed announced the first of a series of interest rate hikes which could prove inefficient to reduce inflation in the U.S. dollar.
The crypto market and Bitcoin could enter a state of “maximum violence”. Supported by the reduction of global liquidity, less money available to purchase BTC, and the reduction of credit. The latter has begun to take an effect.
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Crypto could see a bigger loss because it lacks the countermeasures available for traditional finance actors. While the crypto market could see another series of liquidations and more capitulation events on the backdrop of less liquidity, Cumberland claims these are signs of a potential market bottom:
It’s difficult to predict the scale of the liquidations which have yet to occur, but this type of activity tends to correspond with prices bottoming out. No one has enough dry powder to fight the Fed, but the faster they hike, the shorter hike cycle and the sooner the reversal.