After a dramatic plunge on Monday, Bitcoin (BTC) fell to $49,300. By Tuesday, it had bounced back to $56,000. The big question now is: will this recovery continue, or is it the start of a bear market?
Crypto Trading’s 24/7 Nature: A Double-Edged Sword
Bitcoin and cryptocurrencies trade 24/7, a significant advantage over traditional markets. However, this non-stop trading also exposed a vulnerability over the weekend.
The Impact of Japan’s Interest Rate Hike
Japan’s central bank recently raised its interest rate by 25 basis points. This was only the second rate hike since 2007. This increase affected the “Yen carry trade,” where hedge funds borrow at low Japanese rates to invest in higher-yielding U.S. assets. The rate hike made this strategy less profitable, causing hedge funds to unwind their positions.
Weekend Sell-off in Cryptocurrencies
With traditional financial markets closed over the weekend, hedge funds needed liquidity to close their carry trades. Cryptocurrencies became the only sellable assets, leading to Bitcoin’s crash.
USD/JPY Holds Support Amid Market Turbulence
The USD/JPY pair saw a significant drop, favoring the yen and weakening the dollar. However, it found support around 145 JPY. While the carry trade unwinds, major stock markets are now open, and Monday saw a massive $6 trillion sell-off in traditional assets.
Federal Reserve’s Possible Response
There were rumors of an emergency meeting by the Federal Reserve to raise rates immediately. However, this move seems unlikely, as it could be seen as a sign of desperation.
Bitcoin’s Strong Bounce
Bitcoin showed a significant recovery from its low of $49,300. Strong support exists between $51,000 and $52,000, stemming from previous bull markets. If BTC ends the week above $55,600, the recovery might continue. Conversely, if it falls below $51,000, the next strong support is between $41,000 and $43,000, with the bull market trend line being the last defense.
Conclusion
Bitcoin’s recovery to $56,000 offers hope, but the market remains volatile. Investors should watch key support levels to gauge the future direction.
