The expectation of the Fed's interest rate hike has led to increased uncertainty in the bitcoin market.

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A news that "the US Treasury Department announced that cryptocurrency transactions exceeding US$ 10,000 should be reported to the IRS" popped up through major news and information software. At that time, the market was in a rebound from the panic recovery after the previous day's plunge. Affected by this news, Bitcoin "in shock" fell by 5.1% for a short time, and the lowest fell to US$ 38,109.6.

However, due to the decline on May 19th comparable to that on March 12th, 2020, there is a strong demand for rebound in the encryption market. As of the end of the draft, Bitcoin has rebounded slightly to the position of $40,206.8, but there is still a slight gap from the high point of $42,398.2 before the news was issued.

According to the analysis of Ouyi OKX Investment Research, Bitcoin faces a strong resistance range of 42,000-43,000. So far, it has not been able to effectively break through this area. If the volume breaks, it is expected to launch an impact on 46,000. If it is not broken for a long time, it will continue to fall below 40,000 US dollars and bottom out again. Before the market sentiment stabilizes, investors need to do a good job of risk control when participating in the transaction.

The encryption market suffered a 5.19 plunge, and the bull market was over?

On May 19th, the encryption market suffered the biggest plunge since March 12th, 2020. Ouyi OKX market shows that Bitcoin once fell from the high of $43,816.3 that day to $29,000, a drop of 34%. Ethereum, with the second market value, dropped from $3,464.18 to $1,764.5, with a maximum drop of 49%. The mainstream is still like this, and the situation of the shanzhai people can be imagined. Many shanzhai people are facing a waist cut, and in some extreme cases, there has even been an 80%-90% decline.

The total market value of cryptocurrency dropped from $2.13 trillion to $1.53 trillion, a decrease of 28%. Like any large-scale decline in the encryption market in the past, derivatives and leveraged traders suffered a greater impact. According to OKLink data, in the 24 hours after the plunge, the settlement amount of the Ethereum loan agreement reached 385 million US dollars, a record high, among which AAVE V2 ranked first with the settlement amount of 177.5 million US dollars.

On May 20th, the data showed that the index of panic and greed dropped directly from 23 to 11, and the level was "extreme panic". It is reported that the panic and greed index originates from Buffett's investment philosophy-others fear that I am greedy, while others are greedy and I am afraid. The threshold is 0-100, where 0 means "extreme panic" and 100 means "extreme greed", which means that the market may adjust.

Since Bitcoin changed from a short-term sideways trend to a downward trend on May 11th, as of May 21st, the decline of Bitcoin has reached 31%. Due to the continuous decline, the year-to-date increase of Bitcoin has dropped from 119% when it hit an all-time high of $64,846.9 on April 14th to 37%, a decrease of 82 percentage points.

The plunge of Bitcoin is a big test for investors. The polarization of market voice is becoming increasingly obvious. Some people think that the bull market is over. First of all, a large number of profit-taking discs have been accumulated in the market. The biggest increase of Bitcoin since March last year has exceeded 16 times. After October, a large number of institutions that entered the market also made a lot of gains, and the pressure on cashing profit-taking discs increased. Secondly, the Fed's original firm attitude of implementing loose monetary policy has loosened. The soaring price of Bitcoin is closely related to the global liquidity flood. Once the United States enters the interest rate hike cycle, Bitcoin will be weak; Third, the increasingly crazy situation in the encryption market has led to the tightening of supervision in various countries, and the probability of policy negative has increased; Finally, the technical indicators are not very good. Bitcoin has rebounded weakly since it fell below the daily MA120, and has not even effectively stabilized the MA200 in recent days. Usually, MA120 is regarded as the key indicator of the mid-term market turn, while MA200 is regarded as the dividing line between bulls and bears.

Those who think that the bull market is not over, they think that it takes time for a bull to turn into a bear. It is not such a direct plunge into a bear, but a long-term consolidation, yin decline and then plunge. Finally, most people retreat and leave the market. At present, it is just a callback in which the market goes to the middle of the bull market and the bad news is concentrated. After the plunge and deleveraging, the market will return to rationality and the funds will return to the mainstream value. They believe that this plunge is another epic exchange of chips in Bitcoin.

According to the data provided by CryptoQuant analysis platform, within 24 hours after the plunge of Bitcoin, the stable currency inflow of several cryptocurrency exchanges reached a record high, reaching 5.28 billion US dollars, which indicated that the giant whales bought on dips again. In addition, Glassnode data shows that the whale transferred 19,639 bitcoins from the encrypted exchange, worth about 791 million US dollars.

The following figure also shows that compared with the large amount of bitcoin flowing into the exchange in the past few days, the inflow in these two days has dropped significantly.

加密分析师Lark Davis指出,近期的下跌导致比特币的14天相对强弱指标自2020年3月以来首次进入超卖区域,这表明暴跌可能进入了平台期。

Some analysts believe that it is still too early to draw any conclusions about the recent decline of Bitcoin, but the past cycle of Bitcoin has also told us that before the bull market peaked, every callback of 30%-40% was normal, and the immediate plunge was only the third time this bull market experienced.

Glassnode's MVRV Z-Score chart shows that at the peak of the previous bull market cycle, it once exceeded 10, but this bull market has not reached 8 so far, which seems to mean that the price of Bitcoin has not peaked. MVRV Z-Score is an index used to evaluate when bitcoin is overvalued and undervalued relative to its fair value.

It should be mentioned that because of this decline, the market share of Bitcoin has returned from the previous decline of 40% to more than 43%.

The Federal Reserve discussed reducing its bond purchases, and gold attracted bitcoin funds.

As panic selling occurred on the evening of May 19th, the focus in recent days has been more on the analysis of market information before selling. However, in fact, after the selling tide, the Federal Reserve released the minutes of the FOMC meeting on interest rate policy in April in the early morning of May 20th, which proposed for the first time that it might start to discuss the pace of adjusting asset purchases. This news was interpreted as that the monetary easing policy implemented by the Federal Reserve during the COVID-19 epidemic might turn.

Affected by this news, US stocks fell first, and gold retreated the gains of the day. After falling to $29,000 at 21: 00 on May 19, Bitcoin gradually rebounded to above $40,000, but after the Federal Reserve announced the minutes of this meeting, it fell to $34,909.8 again. However, as the contents of the minutes were gradually digested, US stocks recovered most of their lost ground, gold turned higher, and Bitcoin gradually stood at $39,000.

Previously, Yellen's suspected interest rate hike theory triggered market shock, and it only improved after Yellen downplayed her interest rate hike remarks. It can be seen that the market is becoming more and more sensitive to interest rate hikes. Analysts believe that the low interest rate is a favorable factor for the strong bitcoin market. Since the COVID-19 outbreak, the central banks led by Europe and the United States have pursued extremely loose monetary policies, which has pushed up inflation expectations in the financial market. Many investors regard Bitcoin, known as "digital gold", as a safe haven to hedge against the depreciation of the dollar, and once the hammer of raising interest rates is settled, it will definitely have a great impact on the subsequent trend of Bitcoin.

So when will the Fed's interest rate hike come? Perhaps it is necessary for us to review the pace of the Fed's interest rate hike. In the past 20 years, the United States has only experienced two rounds of austerity cycles, namely, the interest rate increase cycle from 2003 to 2006, and the QE exit and interest rate increase cycle from 2014 to 2018. These two rounds of interest rate hikes last for about 3-5 years, which means that once the Fed's tightening mode is started, it will have a long-lasting inertia.

Refer to the rhythm of the Fed before the last round of tightening cycle: in May 2013, the Fed publicly proposed to discuss the withdrawal for the first time; in September 2013, the Fed listed the reasons for QE withdrawal and how to reduce the QE scale; in December 2013, the Fed explicitly and substantially reduced QE; and finally, it entered the real withdrawal stage in January 2014. Therefore, the market expects that the Fed may withdraw from QE in the second half of 2021 or the first half of 2022. If it is implemented for one year, it will be in 2002. Past history has proved that after the Federal Reserve announced a rate hike, US stocks will fall to varying degrees, which will naturally have an adverse impact on encrypted assets when market liquidity tightens.

In addition, JPMorgan Chase analysts believe that institutional investors are leaving the bitcoin market to invest in gold. Because bitcoin has fallen by 28% since the beginning of May, while gold has risen by 5%. Recently, it once approached $1,900 per ounce, setting a new high since January 8. To some extent, the recent strength of gold has also suppressed the price of bitcoin.

In response to the plunge in the encryption market, Cathie Wood, the "investment queen", said that she still firmly believes that the price of Bitcoin will reach 500,000 US dollars, and she is currently experiencing a vacancy, but it is not necessarily at the bottom. Musk, who was recently considered as a "traitor", also said that "Tesla has a Diamond Hand", that is, she firmly holds the bitcoin in her hand.

Past history shows that both QE withdrawal from discussion and substantial withdrawal will cause obvious reactions in financial markets. In the past, Bitcoin was not highly correlated with mainstream financial assets because of its small market value. However, after experiencing a sharp increase in the market value of this bull market, the relationship between Bitcoin and mainstream markets is bound to be closer. From May to December, 2013, due to the expectation of tightening monetary policy, gold came under great pressure, and its price dropped by 18%. It should be noted that the current round of quantitative easing by the Federal Reserve is much higher than that in 2013, so when it opens the door to discuss the reduction of bond purchases, the future fluctuation of the encryption market may also intensify.