The rally in Bitcoin may halt any time because most traders are starting to wonder if the bounce from recent lows was too quick and too early. In fact, price has already lost about 2.6% on Tuesday, making BTC close at $43,000. Other cryptocurrencies dipped as well, by as much as 2.3%.
"Today's pullback is due to some profit-taking after a big move. It's just a matter of traders taking some short-term profits," said Matt Maley, chief market strategist at Miller Tabak Co. He added that Bitcoin moved above its trend line, so it has plenty of room to take a breather in the short term without disrupting its recent gains.
Analysts also observed that cryptocurrencies have been moving in tandem with other riskier assets such as US stocks, and this relationship was evident in January, when both asset classes showed more volatility. That is why it will not be a surprise if cryptocurrencies decline this coming months as hawkish statements from the Fed, ongoing micromicron fears, declining stock prices and inflation worries will pull down the stock market.
At the moment, Bitcoin is above its 50-day moving average, which signals that the rally has gone too far and too fast.
"One of the things crypto does not have going for it is there may be a relatively fixed set of investors and those investors may be finding themselves expecting to be somewhat less liquid. There's not going to be unlimited liquidity from the Fed anymore, and if we have the money-supply contracting, if we have interest rates rising, it will tend to make things like crypto less attractive," said Brian Nick, chief investment strategist at Nuveen.
