Market Wrap: Bitcoin and Stocks Drop; Analysts See Risk of Further Downside

Global markets were in risk-off mode on Friday, sending stocks and cryptos lower.

The U.S. consumer price index (CPI), the most widely tracked benchmark for inflation, rose 8.6% on a year-over-year basis in May, topping expectations that it would decline to 8.2% from April's 8.3%. That triggered a $500 price drop in BTC earlier in the New York trading day.

Typically, investors reduce their exposure to risk during times of rising inflation, which is not just a U.S. issue. The median global inflation rate is now 7.9% year over year, versus 3.05% last June, according to Deutsche Bank. "The shock value from U.S. inflation has lessened even if today's print was pretty shocking in itself," the bank wrote in a research note.

The S&P 500 also declined on Friday, while gold, a traditional safe haven ticked higher. The 10-year Treasury yield returned above 3% as investors continued to position themselves for rising interest rates.

Bitcoin (BTC) was down by 4% over the past 24 hours, compared with a 6% drop in ether (ETH) over the same period. Most alternative cryptos (altcoins), which are deemed to be riskier, underperformed bitcoin on Friday. That suggests a lower appetite for risk among crypto traders.

Latest prices

●Bitcoin (BTC): $29,080, −3.08%

●Ether (ETH): $1,677, −6.08%

●S&P 500 daily close: 3,901, −2.91%

●Gold: $1,876 per troy ounce, +1.46%

●Ten-year Treasury yield daily close: 3.16%

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

The bitcoin Fear & Greed Index returned to "extreme fear" territory, reversing a slight uptick over the past few days. Bearish sentiment has been a persistent theme over the past few months, which has kept some crypto buyers on the sidelines.

For now, technical indicators show short-term deterioration in bitcoin's price action, similar to equities. "For bitcoin, risk now appears heightened of a retest of long-term support around $27,200, noting intermediate and long-term momentum gauges point to more downside," Katie Stockton, managing partner at Fairlead Strategies, wrote in an email.

Bitcoin faces lower support at $25K-$27K

Bitcoin declined from the $33,000 resistance level last week, which indicates a loss of upside momentum. That lowers the chance of a prolonged relief rally.

BTC is roughly flat over the past week and has been confined to a choppy trading range. Initial support is seen at $25,000, which is near the May 12 price low.

Momentum on the daily chart has weakened over the past few weeks, suggesting BTC's downtrend from November of last year could continue over the short term. A downtrend is defined by lower price highs and lower price lows.

Secondary support is at the 200-week moving average, currently at $22,294. Still, a sharp price decline could eventually stabilize at $17,673, which is a 78% retracement of BTC's prior uptrend from March 2020 to November 2021.

The relative strength index (RSI) on the weekly chart is oversold, which means selling pressure could subside over the next few weeks.

Oversold readings do not indicate a definitive price low, however, especially within the context of a downtrend. Rather, adding a short-term momentum overlay to the 14-week RSI can help determine when oversold signals give way to a potential trend reversal, similar to what occurred in April 2020 and August of last year.

The chart below shows when the RSI's downside momentum reverses to the upside, or when the red shaded areas turn gray.

At this point, a majority of momentum indicators remain bearish.

Altcoin roundup

• Altcoins nosedive after CPI data: Major altcoins fell sharply in tandem with bitcoin as the consumer price index (CPI), the most widely tracked benchmark for inflation, rose 8.6% on a year-over-year basis in May to a new 40-year high, topping expectations that it would decline. Ether (ETH) dipped by 6.3% over the past 24 hours, while SOL and ADA fell 5.5% and 8.3%, respectively. Read more here.
• Optimism attacker returns tokens: The attacker behind the recent theft of 20 million Optimism (OP) tokens returned 17 million of them on Friday. Optimism is a layer 2 rollup chain for Ethereum that helps scale the network. It launched the OP governance token last month in a bid to shift towards greater community control. The attacker managed to get a hold of OP tokens that were supposed to go to Wintermute, a crypto market maker that partnered with Optimism in the run-up to the token’s introduction.Read more here.
• USDC-issuer buys Web 3 developer: Payments company Circle agreed to buy Cybavo, a digital asset infrastructure platform that focuses on custody and blockchain application development. Circle is the issuer of USDC, the second-biggest stablecoin, behind tether (USDT). Circle will invest in research and development related to the Taiwan-based Cybavo as well as support its products and services. Read more here.

Relevant insight

• Fidelity’s Abby Johnson Reaffirms Crypto Commitment in Bear Market: The CEO sees opportunities to buy on a dip.
• Dragonfly’s Haseeb Qureshi Is Still Optimistic in the Crypto Bear Market: Crypto’s most successful projects have historically been built during down cycles, he says.
• Digital Payments Firm Flexa to Buy Drop Party to Engage With Customers: Drop Party uses merchandise drops to connect brands and consumers.
• Terra’s Luna, Luna Classic Tokens See Volatile Trading Amid New Developments: Futures tracking the two tokens racked up nearly $18 million in liquidations over the past day in a higher-than-usual move.
• Grayscale, Bitwise Confident a Spot Bitcoin ETF Will Be Approved Soon: Bitwise Chief Investment Officer Matt Hougan pointed to a progression of approval decisions by the SEC that “ends in a spot bitcoin ETF.”
• Marathon Digital Bitcoin Production Weaker Than Hoped in May: The company continues to HODL all of its mined bitcoin, with 9,941 coins worth $315.1 million on its balance sheet as of June 1.

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Biggest Gainers

There are no gainers in CoinDesk 20 today.

Biggest Losers

Asset Ticker Returns DACS Sector Chainlink LINK −8.6% Computing Cardano ADA −8.5% Smart Contract Platform Algorand ALGO −7.3% Smart Contract Platform

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.