Bitcoin plunges to five-month lows amid crypto selling spree

Bitcoin suffered sharp falls of around 7%, amid a wave of selling in the cryptocurrency market that has led the most traded of the digital currencies to mark five-and-a-half-month lows and, more importantly, reach the important support of $40,000. The digital asset, that closed Thursday at this price level, following Wall Street's declines because of Netflix, has continued to drain positions to $38,500. Meanwhile, almost $150 billion has evaporated from the market, whose capitalization is $1.83 trillion, compared to $1.98 trillion on Thursday, before the European opening.

As for Ethereum, the second-largest cryptocurrency by market capitalization has fallen 8% in the last 24 hours to prices around $2,800, the lowest since late September 2021. Thursday's close was at the $3,000 support, that had been threatened in recent days and which has definitely given way, registering four-month lows.

The rest of the tokens have suffered the same fate, as Cardano has fallen more than 11%, while Ripple, Polkadot, Litecoin, Solana, Terra and Stellar have also traded down in a range of between negative 5% and 15% during the last 24 hours. The price of Dogecoin has also plunged more than 9% to $0.1487 and accumulated falls of more than 20% in the last week. Shiba Inu has given up around 8% to $0.00002589. In general, the 'altcoins' have also left multi-month lows.

The declines in cryptocurrencies echo the suffering of the technology sector on the New York Stock Exchange, just when it has transpired that more than 40% of trades in these assets are executed during Wall Street trading hours. The Nasdaq is down nearly 5% this week, and the S&P 500 is on track to close its third consecutive week of losses.

Moreover, with Bitcoin 14% below the price level at which it started the year and almost 45% below its all-time high of November, at $69,000, there are several reasons cited by experts for this start to the year, that do not bode well for analysts and cast doubt on the most optimistic predictions.

RISKY ASSETS AND REGULATION EXITS

When 10-year U.S. Treasury yields soared earlier this week, rising rates forced investors to exit their positions in riskier assets. Yields are moving in the opposite direction of prices. The US Federal Reserve's (Fed) tapering of stimulus and tightening of monetary policy is bad for unregulated markets such as cryptocurrencies. Fed tapering and rising interest rates could lead to a reduction in global liquidity and ultimately affect Bitcoin´s price.

Also, the cryptocurrency sector has recently faced several regulatory setbacks such as skepticism about the rapid growth of digital assets around the world. Cryptocurrency exchanges will be in the crosshairs of the US Securities and Exchange Commission (SEC) regarding digital assets in 2022. Russia's central bank yesterday proposed a ban on Bitcoin mining and trading of these assets across Russia and in the European Union (EU). The European Securities and Markets Authority (ESMA) is pushing for the EU to ban cryptocurrency mining for assets that use the proof-of-work (PoW) model such as Bitcoin.

Negative news also included cryptocurrency funds seeing outflows for the fifth week in a row, as the digital asset manager of CoinShares stated in a report, because net outflows from digital asset investment products for the week ended January 14th, totaled $73 million.

All of the above has created a perfect storm in the cryptomarket and technical analysis that does not bode well, as once $40,000 is lost, the next major support will be around $30,000, $28,900 to be precise.