Bitcoin faces resistance at $40,000 as crypto sell-off pauses as volatility wanes

Most cryptocurrencies stabilized on Tuesday as market volatility subsided. Wild price swings have become the norm this year amid macroeconomic and geopolitical uncertainty. Wars, rising interest rates, inflation and slowing economic growth have combined to cause investors to reduce their risk exposure, especially in the first half of the month.

The price action over the past two weeks resembles the pullbacks seen in February and early March of this year. This could indicate that cryptocurrencies and stocks are set to enter a short-lived recovery phase barring any unforeseen circumstances.

On Tuesday, Bitcoin encountered resistance at $40,650 when trying to rebound above $40,000 in early trading, and the price eventually fell back below $39,700. Most altcoins outperformed Bitcoin, with SHIB up 12% in the past 24 hours, while BTC fell 2%. Near Protocol's native token NEAR rose 3%, while Convex Finance's CVX token fell 6% in the past 24 hours.

Stocks were largely flat as the U.S. 10-year Treasury yield fell. Gold, a traditional safe-haven asset, rose, which could indicate underlying uncertainty in the market.

Today’s monthly U.S. Consumer Price Index (CPI) came in at 8.5%, slightly above expectations and a 40-year high, but some analysts and economists are now predicting that this could mark the peak of the current inflation cycle.

The uptick in Bitcoin volatility over the past few days has been short-lived, which could indicate short-term stabilization in Bitcoin’s spot price.

“Bitcoin is volatile and the market is not showing much panic,” crypto trading firm QCP Capital wrote in a Telegram announcement, noting that short-term volatility has risen over the past day, while long-term volatility has barely budged.

“One clear pattern we have noticed is that front-end volatility has been moving inversely to the Bitcoin spot price,” QCP wrote. “This means that when the spot price is lower, volatility is higher, and when the spot price is higher, volatility is lower.”

Lately, traders have been demanding more call options than puts, creating an imbalance. “As a result, there is much less panic in the market when prices are moving higher than when they are plummeting,” QCP wrote. That’s forced some traders to scramble for put options to protect themselves in the event of a decline.

The chart below shows a slight increase in the Bitcoin put/call ratio, which indicates greater uncertainty among market participants. So far this year, the ratio has been trending downward, although an improvement could mean greater volatility in the cryptocurrency’s price.

Currently, options markets give BTC a 62% chance of trading above $36,000 in May, near the bottom of its two-month price range.

Insights into the on-chain behavior of Bitcoin investors were discussed in Glassnode’s latest weekly report, which noted that “investors engaged in modest profit-taking” after Bitcoin broke out from its multi-month consolidation range.

According to Glassnode, “the market has realized profits of approximately 13,300 Bitcoin per day since mid-February,” and while this number is not “historically extreme,” it does seem to be “providing enough resistance for prices.”

Overall, Bitcoin’s recent recovery has been relatively weak as the market awaits some major catalyst to help bring new momentum and fresh capital inflows to the cryptocurrency market.

Glassnode said, “Bitcoin’s recovery has been relatively muted so far, especially in terms of on-chain activity metrics such as transaction count and active users, continuing to suggest that Bitcoin is a HODLer-dominated market with little influx of new investors.”

Cryptocurrency trader “BTCfuel” posted the following chart outlining the possibility of an upcoming “mega pump” for Bitcoin.

BTCfuel said, “Judging from the relative strength index (RSI), the Bitcoin pullback in 2022 is very similar to that in 2021. A strong bullish move is imminent.”