As stated in last week’s report, Bitcoin’s 50-day simple moving average (SMA) did its job as an immediate resistance level.
The gravitational pull from this key technical indicator prevented Bitcoin from moving significantly higher, guiding prices down back closer to the psychologically-important $21,000 mark at the time of writing.
Really, no surprise that riskier assets such as crypto are being dragged down by the apprehension that’s playing out across global financial markets.
After all, this is a pivotal week for markets.
All eyes are honed in on the upcoming US Federal Reserve policy meeting.
While the FOMC’s 75bps hike is widely expected (anything else would be a major surprise), it’s what the FOMC/Fed Chair Jerome Powell says about the central bank’s plans for US interest rates going into 2023 that could set the tone for how risk assets perform over the rest of this year.
After this week’s 75bps hike, assuming the Fed indeed triggers such a jumbo-sized hike yet again after a similar-sized move at its June meeting – markets are expecting to Fed to ease its hikes down to 50bps hikes, twice, over its remaining 3 scheduled policy meetings in 2022.
In fewer words, that implies another 100bps in hikes for the rest of this year (after this week).
Crypto could sink further if Fed gets more aggressive
If on Wednesday, Powell and co. signals to the market to expect more than 100bps hikes during the Sept-Dec period, that could spell another leg down for riskier assets.
Note that risk assets generally shudder at the thought of higher interest rates.
The world’s largest crypto has now shed more than half of its value (-54.4%) compared to where it was at the start of 2022, largely on the notion that the Fed’s rate hike cycle was set to commence this year (which it did since March). The Fed’s actions in draining liquidity from financial markets have hurt the more-speculative segments, while the capitulation in so-called stablecoins as well as the woes as major hedge funds and exchanges have only curtailed sentiment surrounding the crypto sector.
Bitcoin bulls can at least take heart from the fact that the dips into sub-$20k territory have proved short-lived thus far.
But there’s plenty of doubt whether it can survive the onslaught from a more aggressive Fed rate hike cycle.
As things stand, there appears to already be enough buyer’s fatigue on show, judging by Bitcoin’s failure to launch past its 50-day SMA.
Even Tesla has already shed 75% of its Bitcoin and turned it into good ol’ fiat currency, apparently to help with liquidity issues that the EV-maker is facing. Though according to Elon Musk, the company’s paring down of its crypto shouldn’t be construed as a verdict on Bitcoin itself.
Still, looking at the charts, Bitcoin is now testing a crucial support level around the $21k mark, being its lower uptrend line that has guided prices higher since mid-June.
If these key areas of interest do not hold, namely the $21k and $20k lines, one cannot rule out a capitulation in prices resulting in a swift plummet down to the $10k mark for Bitcoin.