Bitcoin (BTC) starts the second week of May 2022 bringing ghosts of lows from its past – how much worse could the scenario get for hodlers?
After dropping to nearly $33,000, the biggest cryptocurrency is giving market participants, new and old, a run for their money, and the fear is palpable.
A brutal combination of macro influences, which are expected to continue this week and beyond, forms the backdrop for some historic chart retests that no one wanted to see again.
As capitulation expectations continue, there is still a lack of agreement on how far BTC/USD can or should fall to place a convincing long-term bottom.
Cointelegraph looks at factors likely to contribute to market moves in the coming days as Bitcoin approaches its 2022 lows.
Six weekly closes in the red
Be that as it may, there is little to be bullish about when it comes to Bitcoin price charts this week.
The weekly close on May 8 at $34,000 meant the BTC/USD pair delivered its sixth consecutive weekly red candle.
This chart feature has not been seen for nearly eight years – the last occurrence began in August 2014 – data from Cointelegraph Markets Pro and TradingView shows.
Then, as now, Bitcoin was in the second year of its four-year halving cycle, having seen its first peak at just over $1,000 in November 2013. This cycle, however, was different in that this peak or did not arrive or was much quieter than previous cycles.
Meanwhile, macroeconomic conditions have dissolved any hopes of a late rise among most analysts, who now expect a financial squeeze by central banks around the world should keep risky assets such as cryptocurrencies firmly in check.
Back on the chart, the BTC/USD pair has already lost over $4,000, or 11.1%, in May.
Historically, the worst month of May on record was, in fact, last year, when the pair lost 35.3%, data from on-chain monitoring resource Coinglass shows.
After April’s performance, however, the chances of a comeback seem slim. For four straight years before 2022, Bitcoin has gained at least 32% in April, but this year has seen a loss of 17.3% – the worst on record.
BTC’s 100-week moving average drops
As such, analysts’ advice when it comes to short-term Bitcoin price action is pretty much unanimous at the start of the week: be careful.
After the weekly close, the BTC/USD pair continued to drop to $30,000 at the time of writing, looking to test $33,000 and the January lows of $32,800 to follow.
“Don’t try to pick up that knife”, he said the Material Indicators on-chain analysis feature to its Twitter followers alongside a graph showing bid support disappearing from Binance’s order book.
The May 8 backlog shows a large bid wall at $33,000. It was placed there when another wall of buying interest at around $33,800 was quickly dealt with by the market, showing the veracity of selling pressure in the current environment.
“Historically, $69.5 million in BTC offering liquidity would serve as support, but historically it also had a significant amount of liquidity below it. That doesn’t seem to be the case here.” added o Material Indicators about this first line of defence.
Last week’s weekly candle also saw Bitcoin fall below its 100-week moving average (WMA) for the first time since March 2020.
Then, as with some previous piercings of the 100 Weekly Moving Average (100 WMA), BTC/USD moved on to testing 200 WMA as support. For the popular Bitcoin Back Twitter account, the implications this time around are obvious.
“The previous two times led to capitulation to the 200-week moving average in 2014 and 2018,” wrote it in part of its last update.
“Today’s chart has a lot of differences from these two periods, and these two periods were very similar to each other.”
Blockchain Backer, however, added that it expected a “big dip” on May 8, following the latest show of weakness.
As Cointelegraph recently reported, meanwhile, expectations even long before the weekly close were for Bitcoin to drop to or below $30,000 in the coming weeks.
US CPI should point to continued inflation
Bitcoin’s fall in the first week of May was overwhelmingly thanks to broader macro weakness now firmly established in global markets.
Stocks are particularly problematic in this regard, as the cryptocurrency’s continued correlation with these indices makes for a dismal ride for investors.
Things came to a head last week after confirmations of quantitative tightening from the US Federal Reserve, as the S&P 500 marked its first five consecutive weekly declines since 2011.
Now, amid the Russia-Ukraine conflict and associated financial pressures, another force must return.
Inflation, which is already at its highest level in the US since the early 1980s, is expected to worsen thanks to the fallout from trade disruption and sanctions on Russia.
This week, the consumer price index (CPI) data for April will be released, and chances are the numbers reflect the extent of geopolitical turmoil like none before.
US President Joe Biden will address the inflation issue on May 10, ahead of the May 11 CPI print.
The March CPI was 8.5%, while noises are already coming from analytical circles that inflation may be peaking now or in the near future.
“We expect inflation to peak this summer at between 6%-7% and fall back to 3%-4% next year without recession… than the annual increases of various measures of prices and wages.” – @yardeni pic.twitter.com/4mXXxFvmIN
— Carl Quintanilla (@carlquintanilla) May 8, 2022
“The best-case scenario for a bottom for me would be capitulation somewhere in the next few days, followed by a lower-than-expected CPI print on Wednesday,” argued the popular Daan Crypto Trades trading account:
“That would be my cue to bet big.”
Big or small, CPI events have tended to trigger short-term BTC price volatility in recent months.
Calculating the capitulation
On the topic of “capitulation” – a mass sell-off as investors panic to sell their Bitcoin – the data shows that the temptation to initiate can be strong.
Currently, more than 40% of Bitcoin’s supply is at a loss, and this is the highest proportion since April 2020, right after the COVID-19 crash.
7.7 million #Bitcoin are currently at a loss. This is the highest amount since April 15, 2020.
This is almost 41% of the total circulating supply. pic.twitter.com/uXPR9PiJHT
— On-Chain College (@OnChainCollege) May 7, 2022
At that time, a true capitulation event took place, as evidenced mainly by the price.
Analysis of unrealized profit and loss among hodlers at the time, as defined by on-chain analytics firm Glassnode, also confirmed the capitulation on March 16, 2020.
Just nine days later, the company’s unrealized net profit/loss metric moved out of the “capitulation” zone and into “hope – fear” – a shadow towards recovery.
Currently, the metric measures “optimism – anxiety” and is descending towards “hope – fear” territory.
Sentiment drops to lower macro zone
It is no surprise that general cryptocurrency market sentiment has not benefited from the May events so far.
According to the Crypto Fear & Greed Index, however, it was only this week that the reality of the situation hit most.
As of May 9, the classic sentiment meter measures 11/100, firmly in its “extreme fear” support and also at levels that have historically formed bottoms.
Crypto Fear & Greed halved in just two days.
The traditional financial market equivalent, the Fear & Greed Index, began to diverge from the cryptocurrency, stable at 30/100, or “fear”, on May 9, even after the chaos of last week.
“With Bitcoin now retreating to $33,900, trader sentiment has dropped to six-week lows,” commented the research firm Santiment about the situation:
“We normally prefer to see signs of capitulation like this, as weak hands leaving the space is often what is needed for a truly remarkable leap.”
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