US Dollar Hits New 20-Year High – 5 Things to Know in Bitcoin This Week
Bitcoin (BTC) enters the first week of September on a rocky path down the US market’s Jackson Hole route.
After the US Federal Reserve reinforced hawkish comments on the inflation outlook, risk assets sold off across the board, and crypto is still reeling from the aftermath.
A fairly non-volatile weekend did little to improve sentiment, and BTC price action has returned to focus on sub-$20,000 areas.
In doing so, several weeks of upside have effectively disappeared, and in turn, traders and analysts expect a retest of the macro lows seen in June this year.
While all is now quiet regarding the Fed until the September rate hike decision, there is still plenty of room for turmoil as geopolitical uncertainty and inflation persist, the latter still rising in Europe.
But as of last week, Bitcoin appears fundamentally resilient as a network, with on-chain data telling a different story than price charts.
Cointelegraph takes a look at five factors to consider when wondering where BTC/USD could go in the coming days.
Spot price triggers $18,000 target
Data from Cointelegraph Markets Pro and TradingView confirm no surprises to guess what happened to BTC/USD in the last weekly close.
After a relatively uneventful weekend trading period, the pair sold off significantly at the end of August 28, resulting in the lowest weekly close since early July.
A red weekly candle at $2,000 thus sealed a miserable August for the bulls, this after an initial loss of $3,000 the previous week.
With days to go until the monthly candle completes, the mood among analysts was understandably less than optimistic in the near term.
“Hopefully we can see an improvement this week, but the way stocks closed on Friday doesn’t look too hot,” trader Josh Rager in summary to Twitter followers as part of a weekend update.
However, the popular trading account Il Capo from Crypto saw the opportunity for a short squeeze to the upside before the continuation of the downtrend.
Noting negative funding rates that suggest the derivatives market’s bias toward outright losses, he predicted that $23,000 could resurface first.
“A lot more people expect 19k than those expecting 23k. Funding says it all. Also, there’s a lot of juicy liquidity above 21k. Squeeze those shorts,” he tweeted.
Responding, trader Mark Cullen noted that traders “added more BTC shorts in the range between 20.1 and 20.3k.”
“There’s a nice inefficiency above there and another one around 20.9-21.1k. If that can break, it’s likely to be a quick move higher,” he added.
Amid various talks of $17,000 or lower, technical analyst Gert van Lagen gave a floor target of $17,500 for the daily chart.
$BTC[1D]
White C wave scenario I showed last Monday played out like clockwork. Double test of green box on daily.
C-wave finally looks, time to pop
Invalidation: 17.5k#Oxemarked #Bitcoin pic.twitter.com/DkhXmp3GDc
— Gert van Lagen (@GertvanLagen) 28 August 2022
In a slightly less cautious view, TMV Crypto, meanwhile, the flag $18,400 as a high timeframe area of interest.
Traders are bracing for further falls in US stocks
Last week’s bombshell of a speech by Fed Chairman Jerome Powell sent shock waves through risk assets around the world.
By one count, Powell’s eight-minute address removed over $2 trillion from global stocks, including $1.25 trillion in the United States alone.
#Fed‘s Powell has destroyed ~$2 billion in global stock market value with his 8-minute “Until the job is done” Jackson Hole speech, making a loss of $4.2 billion per second. pic.twitter.com/05YE5yG693
— Holger Zschaepitz (@Schuldensuehner) 28 August 2022
“At some point, as the stance of monetary policy tightens further, it will probably become appropriate to slow the increase,” Powell said:
“Restoring price stability will likely require maintaining restrictive policy for some time. The historical record strongly cautions against loosening policy too soon.”
Both Bitcoin and altcoins felt the pressure, with August 29 expected to be quite a trade on Wall Street.
Speaking on Bloomberg Television, Paul Christopher, head of global market strategy at the Wells Fargo Investment Institute, warned that US stocks would fall further, with the S&P 500 expected to break below 4,000 next.
On the flip side, crypto-focused Game of Trades argued that July’s peak inflation had already signaled a macro low in stocks.
Once again, the peak in inflation has called the bottom is stocks for now.
Let’s see if this continues to play out. pic.twitter.com/HE2KfrjMVL
— Game of Trades (@GameofTrades_) 28 August 2022
Flagging cumulative data for the S&P, Game of Trades continued to argue that all was actually not as bad as it seemed.
“The SP500 shows a LOT of underlying strength,” accompanying comments from the weekend read:
“The cumulative advance/decline line speaks to the underlying strength in the market, which many investors are not paying attention to. Despite the SP500 being double digits away from the ATH, the indicator has entered new highs.”
Even a drop to 3900, another insight tiredwould preserve a “bullish formation.”
US dollar targets September 2002 levels
An important accompaniment to upheavals in stocks is the continued strength of the US dollar this week.
At the time of writing on August 29th, these highs are still playing out and the DXY has reached 109.47 at its highest high since September 2002.
“If the dollar continues, it will really destroy things. It has literally gone parabolic,” Raoul Pal, founder of Global Macro Investor, blackwarns that there was “literally nothing before 120” in terms of resistance on the DXY chart.
Cointelegraph contributor Michaël van de Poppe was equally alarmed, including DXY as a factor creating a “moment of truth for the entire crypto market.”
The moment of truth dawns on all #crypto market.
Facing a retest of the 200-week MA, which could eventually lead to a HL and retest.
Sentiment is at a final low.$DXY must reverse or fill in soon. pic.twitter.com/qlvutKi9QG
— Michaël van de Poppe (@CryptoMichNL) 29 August 2022
The dollar’s rise also meant pain for major fiat currencies, especially the euro, which quickly fell back below parity with the dollar until August 29.
The European Central Bank, along with the Bank of Japan, has been reluctant to initiate the same rate hikes as the Fed, which has led to inflation continuing to rise over the summer.
MVRV-Z scores recede into the green
Returning to the “buy” zone is a classic Bitcoin strength indicator that has captured macro bottoms throughout Bitcoin’s lifetime.
The MVRV-Z score indicator, which began preparing analysts for a price bottom in July, is now falling again, hitting a one-month low.
MVRV-Z uses market cap and realized price to determine how close BTC/USD is to its “real value”.
In July, that pressed a potential BTC price floor of $15,600, leaving the buy zone briefly before returning in the second half of August.
As Cointelegraph reported, realized price — the average to which the BTC supply last moved — is now at around $21,600, confirmed data from chain analytics firm Glassnode.
“Extreme fear” makes a comeback
Perhaps unsurprisingly, Bitcoin’s return to below $20,000 has seen its central market sentiment gauge return to its most bearish category.
Related: Bitcoin Mining Difficulty Set For 8-Month Record Gains Despite BTC Price Drop
As of August 29, the Crypto Fear & Greed Index is back in “extreme fear” territory at 24/100.
After reaching as high as 47/100 during the emergency rally, the index is now in the bracket that has characterized several months of 2022.
This year even saw the longest time ever in “extreme fear,” along with lows of just 6/100 as overall market sentiment.
However, analyzing sentiment across investors, chain-based research firm Santiment noted that high-volume investors increased their holdings rather than selling.
“As Bitcoin has danced around $20,000 this weekend, a positive sign is the growth in the amount of key whale addresses,” the commented on a chart for August:
“There is a correlation between $BTC’s price and the number of addresses holding 100 to 10k $BTC and they have risen 103 in the last 30 days.”
Nonetheless, others felt that there was still some way to go before a true macro tipping point was reached in crypto demand.
“The true generational entrance is not only when people are afraid to buy, but when they are too broke to buy,” chain analysis firm Material Indicators recognized:
“Not there yet.”
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
