It’s been a bumpy few months in financial markets, to say the least, with a hot Wall Street rally that turned into a hot sell-off. The forex and bond markets have been equally volatile, but if you look at the price action for most cryptocurrencies, especially bitcoin, it has been unusually stable. That’s not to say that daily movements in cryptos aren’t as choppy as they used to be, as intraday fluctuations remain among the highest for any asset. But the flat trading range between $18,000 and $25,000 shows no signs of breaking anytime soon.Consolidation before next fall?
To be fair, this isn’t the first time Bitcoin has been caught in a sideways range. Before the early June dip that started the recent consolidation phase, the price remained range bound in response to the early May dive from $40,000. But the pattern goes back even further, as it all started after crashing from the all-time high of $69,000 in November 2021. The sell-off lasted until January of this year, after which it consolidated in an upward channel that turned out to be a bearish continuation signal.
But does that mean the same thing will happen again? The current floor of $18,000 has been tested several times, most recently a couple of weeks ago, but appears to be holding up, although the price has stayed dangerously close to the floor since then. Daily momentum indicators are slightly positive.
Breaking the 50-day MA is important
The key test in the short-term is whether Bitcoin will be able to break above its 50-day moving average (MA), which is increasingly restricting prices below and the range floor. Otherwise, risks could tip back down and increase the likelihood of a bearish breakout. A decline below $18,000 would draw attention to the $15,000 and $13,000 levels.
However, if the bulls manage to push the price above the 50-day ma, the next target would be the range top at $25,000, followed by the 200-day ma, which currently stands at $27,823.
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As the correlation with equity markets has weakened somewhat recently, predicting the next direction may have become much more difficult. However, the correlation with the Fed’s rate hike expectations remains more or less intact. The June slump coincided around the same time as futures markets sharply reassessed Fed rate hikes, while some unwinding of hawkish bets supports the recent uptrend.
Interestingly, the flat trend also took shape as the Fed began its balance sheet repair and drained liquidity from the markets. This could explain why Wall Street’s huge rally over the summer was only mirrored by a very flat uptrend in Bitcoin. Cryptocurrencies are considered riskier than stocks. So if there is less money available, they lose. The ongoing problem with crypto hackers only underscores this.
Waiting for the Fed pivot
More recently, however, bitcoin appears to have benefited somewhat from the turmoil sparked by the UK budget, as investors use it as a hedge against sterling’s depreciation. This may have helped Bitcoin defend the $18,000 support, but the fact that the price was neutral during this episode suggests there were as many sellers as buyers.
Ultimately, however, despite the weaker correlation with equities and other risky assets in general, the Fed will likely set sentiment for everyone. As concerns about the US and global economy mount by the day, investors believe it is only a matter of time before the Fed peaks in hawkish stance. The first sign of a dovish bias from the Fed may be what it takes to break Bitcoin’s neutral range.
But the longer it takes for the Fed to make that crucial turn, the better the chances of Bitcoin breaking below $18,000 and repeating the bearish continuation pattern.
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