On April.25, Bitcoin (BTC) jumped as much as about 5.5% after the announcement that Twitter will be purchased by Tesla’s CEO, Elon Musk. Since 2021, Musk has become something of a cryptocurrency market mover with his tweets about Dogecoin and Bitcoin. However, in the macroscopic context, Musk’s influence waned and short-lived. Bitcoin as well as the whole crypto market is still at risk of decline.
BTC price plunges as Fed becomes more and more hawkish
Federal Reserve Chairman Jerome Powell discusses the possibility of raising interest rates by 50 basis points at the Fed’s meeting in May. Given this policy, the factors that fueled cryptocurrencies’ stellar gains in the past couple of years are turning into huge bearish ones to the crypto market. The next FOMC will be held on May 3 to May 4, and BTC will face further decline if Fed moves quickly to tame inflation by increasing 50bps.
Escalating EU-Russia confrontation slams global economic outlook
On April 27, Russia cut off natural gas supplies to Poland and Bulgaria, which objected to paying for gas purchases in rubles, dramatically escalating its response to Western sanctions imposed on Moscow over the war in Ukraine. Since the outbreak of the Russia-Ukraine conflict, beyond the suffering and humanitarian crisis, the entire global economy has risks of slower growth and faster inflation.
And now as Russia hits back at escalating Western sanctions, we can foresee that a long fight gears up between Russia and Western, having greater impact on the global economy. Investors will shy away from risky assets like Bitcoin.
On the weekly chart, BTC is trading below the middle line of the Bollinger Band and the Bollinger Band is slightly moving downward. But the BTC price is now getting support from the trend line which formed in 2021. However, MACD and RSI are showing bearish bias, which indicates BTC may be still at a downside risk. If BTC declines below $38,000, the next target will be $35,000.
How to hedge loss in BTC decline & get bigger gains
From the analysis above, we can reasonably speculate that a large downside correction is ahead. Smart traders will hedge loss in spot trade by trading BTC perpetual contracts with 100x leverage. BTC perpetual contract is a popular instrument that allows traders to profit on the market fluctuations.
If you want to open a 100 BTC short position when BTC prices at $39,000, you only use 1 BTC as margin. When BTC declines to $35,000, you will earn ($39,000 – $35,000)*100BTC / $35,000 = 11.4 BTC. With only 1 BTC invested, you will have a chance to make an ROI up to 1100%.
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*This article has been paid. The Cryptonomist didn’t write the article nor has tested the platform.