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BTC: buyers risk losing $40k level

Over the past week, Bitcoin declined 11.47% against the dollar to $41,864. A confluence of factors contributed to the weakening of cryptocurrencies. The triggers for the downturn in prices were rioting in Kazakhstan and minutes from the FOMC’s December meeting.

The FOMC minutes showed that the rate lift0ff is to be expected in March due to a sharp rise in inflation. A discussion was also held at the December meeting about reducing the central bank's balance sheet, which currently totals about $9 trln.

Speculation about monetary policy tightening has negatively impacted the US stock market and major currencies. Bitcoin remains positively correlated with the Nasdaq index, so the decline in US indices has considerably weakened the positions of cryptocurrency buyers.

The riots in Kazakhstan removed all protection from the crypto market. The protests broke out on January 2 due to high gasoline prices, which were hiked from 60 to 120 tenge. These events later escalated into riots with demands for the first president of Kazakhstan, Nursultan Nazarbayev, to step down from politics, for new elections and the dissolution of parliament.

About 18% of global Bitcoin mining hubs are located in Kazakhstan. According to the University of Cambridge, the country ranks second in the world in terms of bitcoin mining (18.1%) trailing the United States (35.4%). Kazakhstan took the lead following the ban on cryptocurrency mining in China. Internet outages across the country forced miners to suspend their activities, with hash rate of the cryptocurrency network plunging 12%.

By the time of writing, BTC was trading at $41,630. The downturn slowed near the trendline that originates from the low of $10,374 (October 2, 2020). Over the weekend, buyers were unable to muster a comeback as the cryptocurrency languished at $40,501.

The gains are currently capped by an increase in the 10-year UST yield and a pullback in stock indices. The DXY fell on Friday after the NFP report came out, but today the index is attempting to pare losses.

The Bitcoin Fear and Greed Index currently stands at 23, up from 15 on Thursday, 6 January. Investors fear another flash crash. After a trendline breakout, three levels will appear on the horizon: $38,190, $32,250 and $26,900 (aggregate trendline from the low of $37,820).

For sellers to calm down, buyers will need to close the daily candle above $43,900. New growth scenarios can be built when the weekly candle closes above $49k.

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