Golden Observation | Why did BTC break below $36,000 after erasing the rebound gains after the Fed meeting?

BTC saw a brief rally on Wednesday following the Fed rate hike announcement. However, the cryptocurrency's "rebound gains" after the current Fed meeting have been wiped out after the price of Bitcoin suddenly fell below $36,000 on Thursday afternoon, which subsequently led to a decline in the entire crypto market.

Noise trading temporarily lacks upward momentum

Risk assets climbed after Fed Chairman Jerome Powell said there would be no 75 basis point increase, with trading volumes and realized volatility surging around the announcement, but trading volumes quickly retreated within 24 hours.

Mike McGlone, commodity strategist at Bloomberg Intelligence, analyzed Wednesday's intraday "relief rally" in cryptocurrencies and stocks as "trader noise." (Noise traders are usually laypeople who behave illogically and trade using incomplete or inaccurate data.)

At the time, the Glassnode team also cautioned that Bitcoin prices remain range-bound and continue to lack any clear macro momentum in either direction, that the correlation between Bitcoin and traditional markets remains near all-time highs, and that Bitcoin is more likely to be a risk asset. Widespread awareness remains a significant headwind.

Intertwined with Global Economic Factors Adding to Uncertainty

After the Fed's interest rate hike meeting, on May 6, European Central Bank Governing Council member Robert Holzmann said that the central bank will discuss raising interest rates at its June meeting and may decide to raise interest rates once.

GSR institutional crypto traders noted that Bitcoin’s correlation with stocks has had its ups and downs, especially during major macro events such as the FOMC meeting. Sentimentally, it's more important to see how the cryptocurrency market is doing at the close of the stock market.

In addition, the supervision of the encryption market has not been relaxed. Recently, the European regulatory agency MONEYVAL listed cryptocurrencies as one of the threats to anti-money laundering. Separately, the Central Bank of Argentina (BCRA) announced that banks in the country are prohibited from providing cryptocurrency services to customers. The BCRA statement stated that the ban on banks from servicing any digital assets that are not regulated by the central bank amounts to a de facto ban as digital assets are not currently regulated by the Argentine government.

Market analysis believes that several factors such as rising inflation, geopolitical crises, encryption regulation, and shifts in U.S. monetary policy continue to drive additional short-term volatility in the cryptocurrency and stock markets. The crypto market has increasingly tracked the stock market in recent months, making it even more intertwined with global economic factors.

According to news on May 6, the three major U.S. stock indexes closed down sharply. The Nasdaq fell 4.99%, the S&P 500 fell 3.55%, and the Dow fell 3.11%. Obviously, the price of Bitcoin was also affected.

Institutional investor sentiment dominated by uncertainty

The current crypto market sentiment is not positive. Implied volatility — a measure of investors’ willingness to buy BTC options — has fallen to its lowest level since early 2019 (3.1%), according to data from Coinbase analytics platform Skew. This indicator measures how much options traders expect to pay in the near term.

Near-term uncertainty still dominates the mindset of institutional crypto investors, said Michael Saffai, a partner at crypto asset trading firm Dexterity Capital. The recent liquidation may exacerbate the pullback, but the asset still has a solid $30,000 floor, so I don't think we'll see a massive pullback like in 2020 and 2021.

In addition, according to the latest Web3 report released by the blockchain analysis company Chainalysis, NFT will experience explosive growth in 2021, but the market will stabilize after entering 2022. Recovery began in mid-April. As of May 1, more than $37 billion has been injected into the NFT market. Since March 2021, the number of active NFT collections on OpenSea has also continued to grow and currently exceeds 4,000. However, the growth of institutional investors did not continue. During the period from late November 2021 to mid-February 2022, institutional investors' NFT purchases increased every week, but then dropped suddenly, and institutional NFT activity has not yet reached the level of winter 2021.

In addition, according to the latest data from Coinshares, the total amount of funds out of the market due to the withdrawal of institutional investors in one month exceeded 339 million US dollars. While markets saw similar volatility at the start of the year, the study suggests that this one did not reverse the trend. The amount started the year at around $467 million, a difference of $128 million, according to Coinshares. According to the report, Bitcoin funds accounted for the majority of recorded withdrawals.