The Bitcoin (BTC/USD) price made a hard landing during the weekend as concerns about its demand fell. The coin declined to a low of $42,000, which was the lowest level since October 1. This price was about 40% below its all-time high.
Why did BTC crash?
There are several reasons why the Bitcoin price has crashed in the past few weeks. First, there is profit-taking going on considering that the coin has done relatively well this year. Bitcoin investors have more than doubled their money this year, meaning that some investors are now exiting their trades.
Second, the BTC price has crashed because of the hawkish Federal Reserve statement last week. In testimony to Congress, Jerome Powell talked about the Omicron variant and how the bank will react. He hinted that the Fed will quicken the pace of tapering.
The Fed is an influential agency across all assets. It is important particularly in Bitcoin, which is considered a risky asset. As such, a hawkish tone usually affects its performance. Indeed, technology stocks, which are also considered risky assets declined sharply on Friday as the Nasdaq 100 index lost about 300 points.
Third, Bitcoin price declined because of the ongoing winding down of heavily leveraged derivatives. Indeed, there was a big large sell order that might have triggered the sell-off. Leveraged derivatives allow traders to use futures contracts to bet on the price movements of a cryptocurrency. They also allow them to trade with little money and make supersized returns.
So, is it time to buy the dip? It is unclear whether the Bitcoin price will rebound any time spoon. For one, El Salvador still believes that the coin will rebound. During the weekend, the country bought 150 coins for the average price of $48,670.
Bitcoin price analysis
The daily chart shows that the BTC price has been in a strong bearish trend lately. Notably, this sell-off started when the price rose to an all-time high of almost $70,000. Historically, Bitcoin tends to struggle whenever it reaches a key resistance level.
The price has moved below the 50-day moving average. It is now trading at the 200-day moving average level while the Relative Strength Index (RSI) has also dropped. Therefore, at this point, there is a likelihood that the coin will continue falling as bears target the key support at $39,722.
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