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Crypto Crash and Stock Market


24 June 2022 Written by Naeem Aslam  AvaTrade Chief Market Analyst Naeem Aslam

The horrors of 2018 and 2017 are back in the crypto market, and crypto traders are not only highly nervous about it, but many are also losing faith in cryptos as the current sell-off intensifies. Over the weekend, the Bitcoin price took a further beating and violated the critical support level of 20K, and the price dipped below the 19K for a brief moment. Although today, we do see some improvement in the price action, traders and investors believe that the current crypto winter will last for some time. This is because there is still a lot of pessimism. Until and unless we do not see the domino effect coming to an end from Terra Luna, which has brought Celsius, another yield-producing project, on the verge of bankruptcy, we are not likely to see any light at the end of this tunnel.

On the other hand, HODlers know that the current sell-off is nothing to worry about. This is because they have been through so many meltdowns in the crypto industry, and every single bear market for bitcoin has ended with Bitcoin claiming a new all-time high. And it is highly likely that this time isn’t going to be different either.

Speaking from a technical price perspective, no matter if you are looking at Bitcoin and Ethereum’s prices on the daily or weekly time frames, the only thing that becomes very clear is that prices for both are extremely oversold as per the Relative Strength Index. Any reading near or below 30 confirms that market pessimism has pushed prices too far, and a rebound is highly likely. However, as the BTC price has violated the current support level of 20K, we may likely continue to see the price moving lower, and there may be one more big sell-off still in the store, which could push the price towards the 15K or even 13K price level. This means that the price of Bitcoin at that time will have retraced more than 85% from its all-time high. Bitcoin price has dropped more than 80% a few times before as well, and this is not to worry because we usually see the extreme pessimism going away when the BTC drops more than 80% and bitcoin prices move higher again.

Stock Market 

European futures are starting the week on the back foot, while US markets are closed today for a bank holiday, which means that the market’s trading volume will remain on the low side. Looking at the price action of the US stock indices and European stock indices, it seems very clear that there is no end point in sight in terms of the current sell-off as the S&P 500 index posted its 10th consecutive down week on Friday, and it is firmly trading in a bear market. There is no shortage of pessimism among investors and traders in the markets as they continue to worry about the consequences of higher energy prices, soaring inflation, the hawkish monetary policy, and eroding disposable income and weakness in the economic data. There is no hope for the US, UK, or even European economies to avoid recession, and speculators believe that it is only a matter of time before it becomes official that the biggest economy in the world, the US, has entered into a recession.

The main issue with the current potential recession is that, unlike previous recessions, this time, central banks will not be able to find an easy way for themselves by printing money and having a dovish monetary policy stance. Central banks have made their positions clear that they cannot afford to leave inflation run hot and will do whatever it takes to bring it down. And for now, the only possibility to lower inflation is by cutting into growth and hoping for the best.

Gold 

The precious metal’s price action will be highly interesting this week as traders will continue to pay attention to the dollar index and the Fed’s monetary policy stance. At the same time, many traders will continue to use the precious metal as a hedge against the ongoing uncertainty in the market. Any weakness in the economic data in the US is likely to make traders buy more gold to provide an extra -safety net for their portfolios.

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