To be fair, this is not the first time Bitcoin has been caught in a sideways range. Before the plunge in early June that kicked off the latest consolidation phase, the price was stuck in a narrow range, which itself was a response to the nosedive from the $40,000 level at the beginning of May. But the pattern goes back even further than this as it all started after the downfall from the all-time high of $69,000 reached in November 2021. The selloff lasted until January this year after which it consolidated in an upward channel that turned out to be a bearish continuation signal.
But does that mean that the same thing is about to happen again? The current floor of $18,000 has been tested several times, most recently a couple of weeks ago, but seems to be holding, although the price has stayed dangerously close to the lower bound since then. The daily momentum indicators are slightly positive.
Overcoming the 50-day MA is important
The key test in the immediate term is whether Bitcoin will be able to smash above its 50-day moving average (MA), which is increasingly confining prices below it and the range floor. Failure to do so could tilt the risks back to the downside, increasing the likelihood of a bearish breakout. A drop below $18,000 would turn attention to the $15,000 and $13,000 levels.
However, should the bulls succeed in pushing the price above the 50-day MA, the range ceiling at $25,000 would become the next target, followed by the 200-day MA, currently at $27,823.
Losing out to equities
With the correlation with equity markets weakened somewhat lately, predicting the next direction may have become a lot more difficult. Having said that, the correlation with Fed rate hike expectations remains more or less intact. The slump in June coincided with the sharp repricing of Fed rate hikes by futures markets round about the same time, while some paring back of the hawkish bets is aiding the latest upside.
Interestingly, the flat trend also took shape when the Fed began its balance sheet runoff, draining liquidity out of the markets. This could explain why the huge rally on Wall Street over the summer was mirrored by only a very shallow uptrend in Bitcoin. Cryptocurrencies are considered riskier than stocks so when there are less funds to go around, they lose out. The ongoing problem with crypto hackers only goes to highlight this.
Waiting for the Fed pivot
More recently, however, it seems that Bitcoin benefited somewhat from the turmoil sparked by the UK budget, with investors using it as a hedge against sterling’s depreciation. This may have helped Bitcoin to 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 though, despite the weaker correlation with equities and other risk assets in general, it’s the Fed that will likely set the mood for all. With concerns about the US and global economy growing by the day, investors think it’s only a matter of time before the Fed reaches peak hawkishness. The first sign of a dovish tilt by the Fed could be what it takes to break Bitcoin’s neutral range.
But the longer it takes for the Fed to make that crucial pivot, the greater the odds of Bitcoin slipping below $18,000 and repeating the bearish continuation pattern.