Bitcoin (BTC) is at risk of falling to multi-year lows after a likely rate hike
Bitcoin (BTC) was rejected by a long-term resistance line last week and created a bearish engulfing candlestick. The price is at risk of breaking down from a long-term horizontal support area.
The Federal Open Market Committee (FOMC) will meet on September 20 and 21 to discuss how to tackle the inflation issue. So far, the FOMC has raised federal funds rates by 25 basis points (bps) in March 2022, by 50 bps in May and finally by 75 bps in June. Currently, there is an 82% chance of a 75 basis point rate hike and an 18% chance of a 100 bps rate hike. These will increase the target rate to 300-325 or 325-350 respectively.
Benjamin J. Cohen, a well-known political economist, stated that: “If you look at past periods of high inflation and FED rate hikes, there is actually a lot of evidence that the bottom will not be in until the FED nears the end of their next round of interest rate cuts , rather than rate hikes However, there are some instances in history where the SPX bottomed out near the end of rate hikes.
This can clearly be seen in both 2009 (black) and 2020 (white). Interest rates (red) had been falling for nearly a year before the S&P500 finally bottomed. So since the Fed is still raising rates, this suggests that the current S&P 500 bottom is still not in.
With that in mind, it is interesting to look at the price movement of BTC to estimate where a bottom will be reached in this current cycle.
BTC movement
BTC has been falling since reaching an all-time high of $69,000 in November 2021. The downward movement has so far led to a local low of $17,622 in June 2022.
While Bitcoin began an upward move shortly after, it was rejected by the descending resistance line last week (red icon) and immediately created a bearish engulfing candlestick (highlighted) on the weekly chart. This is a bearish candlestick pattern where the entire previous week’s gain is negated the following week.
On the bullish side, the weekly RSI appears to have developed a bullish divergence (green line). However, the deviation has not yet been confirmed and may become invalid if the price continues to fall.
In addition, BTC is at risk of breaking below the horizontal support area of $19,000. Since the area coincides with the annual lows, a break below it could lead to a rapid drop to new lows.
A weekly close below this range would confirm a bearish outlook while a breakout above the resistance line would invalidate it.
For Be[in]Crypto’s previous Bitcoin (BTC) analysis, click here
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