The euphoria in cryptocurrencies caused by Bitcoin's attempt to recover above the $50,000 mark ended as quickly as it started. Bitcoin buyers failed to hold above this resistance. As a result, the sellers seized the initiative and pushed the price below $48,000.
In the last few days of the outgoing year, trading activity is slack since most market participants took some time off ahead of the Christmas and New Year holidays. Those who stayed in the market prefer not to open new trades before the new year. An empty economic calendar can also explain low liquidity in conventional financial markets and the blockchain industry.
It should be noted that the cryptocurrency market dynamic is increasingly associated with the general market sentiment during different periods. In other words, the cryptocurrency market is driven by the investors' willingness to take risks.
Positive sentiment usually contributes to the growth of risky assets, while negative sentiment can trigger a sell-off. With the epidemiological situation starting to deteriorate around the globe, traders are being cautious. The number of coronavirus cases is rapidly increasing.
France reported a record high of 179,807 new confirmed cases on Tuesday, the highest number since the pandemic's start. The French health minister Olivier Véran warned that the Omicron variant would soon be the dominant strain of the virus in France.
Earlier this week, Greece recorded 21,657 new cases. Denmark has the world's highest Covid infection rate, with 1,612 cases per 100,000 people. Spain's coronavirus infection rate exceeded 1000 cases per 100000 people. Such depressing statistics force the authorities to introduce new quarantine restrictions.
For example, Germany and France closed their borders to travelers from the UK. The Netherlands has announced a strict lockdown over Christmas, with non-essential shops, bars, gyms, and other public venues closed until mid-January.
Such a news backdrop significantly darkens the prospects for the global economic recovery, forcing investors to rebuild their portfolios and redirect their capital into safer assets. The demand for the US dollar and treasury bonds has surged in recent days.
In addition, traders started to get rid of risky assets, expecting monetary policy tightening in the United States. The Federal Reserve has already laid out a plan to end its asset-buying program and raise its key interest rate three times next year.
Most experts believe that the first rate hike may occur in March 2022. If these expectations are justified, then the 1st quarter of the new year may become extremely unfortunate for all risky assets, including cryptocurrencies. With that said, we recommend shorting BTC/USD with a target of $40,000.