U.S. Treasury Secretary Janet Yellen’s latest sober reminder about the perils of the debt ceiling impasse by appeared to jar crypto markets early Wednesday from their recent, 12-day slumber of low trading volume and declining volatility.
Digital assets traded down sharply after Yellen said that the U.S. could “run out of money” as soon as June 1. Yellen echoed her remarks from three days prior, as well as on May 1.
Bitcoin and ether declined rapidly on higher-than-average volume during the 10 a.m. ET hour. BTC dropped below $26,200 at certain points, well below its range of the past two weeks. Ether tumbled under $1,790.
The decline extended beyond BTC and ETH, with other notable cryptocurrencies falling. Traditional financial markets were also affected, as the Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq all fell during the identical time period.
Bitcoin’s 3% intra-day decline led to the formation of a complex head and shoulder pattern on its daily chart.
A head and shoulders (H&S) pattern is a technical chart formation characterized by a series of three successive peaks, with the second/middle peak representing the formation head. The first and third peaks represent the left and right shoulders. The pattern is used to detect potential reversals from a bullish to a bearish phase, with the signal being a break below the pattern’s “neckline”
The pattern itself is subjective in identification, so investors should use and interpret it cautiously. Still, traders making use of technical formations may view the $26,800 range as the neckline for this particular H&S pattern.
A break below would likely be bearish. A reversal higher after touching the neckline would indicate that the intraday sell-off was overdone and that prices may be poised to recapture earlier levels.
With markets having declined across crypto as well as traditional assets, BTC’s decline was likely driven by broad systemic risk, rather than bearishness specific to the asset itself.
On-chain data indicates that bitcoin “HODLing” has reached all-time highs, a counter indicator to any bearish narrative.
With macroeconomic headlines like Yellen’s statement impacting crypto markets, other systemic risks will likely move prices as well. Earlier reports showed BTC and ETH slipping on sharp increases in UK inflation.
Upcoming reports worth monitoring will be the 2 p.m. release of FOMC minutes, along with U.S. Personal Consumption Index (PCE) data, to be released on Friday.
