BTC/USD Forex Signal: Bitcoin at Risk as Liquidity Dries Up

 Other Bitcoin holders have decided to pull their coins from exchanges into their hot and cold wallets.

Bearish view

  • Sell the BTC/USD pair and set a take-profit at 14,500.
  • Add a stop-loss at 16,500.
  • Timeline: 1-2 days.

Bullish view

  • Buy the BTC/USD pair and set a take-profit at 17,000.
  • Add a stop-loss at 15,000.

The BTC/USD price dropped below 16,000 for the first time since Monday last week as liquidity concerns in the crypto industry continued. It dropped to a low of 15,618, meaning that Bitcoin has dropped by almost 30% from its highest point this month.

Liquidity crisis and rising fear

Bitcoin and other cryptocurrency prices continued their sell-off as concerns about liquidity in the industry continued. A key issue is the recent collapse of FTX and Alameda Research. In a report, analysts at Kaiko warned that their collapse could lead to the so-called Alameda Gap because of the billions the company provided in liquidity.

The liquidity challenge explains why Bitcoin has been a bit volatile in the past few days. In times of low liquidity, the market tends to experience substantial volatility as brokers and exchanges pull bids and ask prices to regulate risks.

Another cause of low liquidity is that many investors have started exiting the crypto industry as risks rise. Other Bitcoin holders have decided to pull their coins from exchanges into their hot and cold wallets.

Meanwhile, investors are getting extremely fearful in the industry. The closely watched fear and greed index declined to the extreme fear level of 20. Historically, Bitcoin tends to decline when fear engulfs the crypto industry.

The BTC/USD price retreat coincided with the crash of American stocks and the rebound of the US dollar. The tech-heavy Nasdaq 100 index declined by more than 120 points. In the past, the Nasdaq 100 has had a strong correlation with Bitcoin.

The US dollar index rose by more than 90 basis points in the overnight session. In most periods, Bitcoin has an inverse relationship with the US dollar. The next key catalyst for the BTC/USD pair will be the statements by Fed officials like James Bullard and Esther George,

BTC/USD forecast

The BTC/USD pair made a bearish breakout on Monday as concerns about liquidity intensified. It managed to move below the lower side of the bearish pennant pattern shown in black. Also, it retested the first support of the standard pivot point. It also declined below all moving averages and the Ichimoku cloud. The Relative Strength Index has tilted lower.

Therefore, the pair will likely continue falling as sellers target the next psychological level at 14,500. A move above the resistance level at 16,405 will invalidate the bearish view.

BTC/USD

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Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.

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