Crypto Gains Evaporate as Signs of Fresh Downtrend Emerge
Bitcoin Fails to Surpass Key Hurdle: $25K Sends the Bulls Tumbling Down
The apex cryptocurrency has just demonstrated what a textbook bounce at S/R looks like: it barely touched $25,000 and made a quick turn, dipping lower. During last week’s post, we talked about the low momentum and about the fact that the candles have long wicks and small bodies, which indicates indecision. Low momentum and indecision are the right ingredients for a bounce and not so much for a break, a theory that was just put into practice by BTC/USD.
The pace of the rate hikes in the United States continues to be tightly correlated with Bitcoin and might have played an important role in today’s massive drop. Fed members have signaled that more rate hikes will take place until they are convinced that inflation has subsided.
James Bullard (St. Louis Fed Chief) is supporting another 75 basis point rise, while San Francisco Fed President Mary Daly said that a 50 or 75 bps hike in September is “reasonable”. As long as the Fed continues to tighten its monetary policy, Bitcoin will probably have a tough time making significant advances due to its status as a risky asset.
Chart Analysis – BTC/USD
On August 15, Bitcoin reached a high at $25,212 and started to decline soon after. At the time of writing, the pair is dropping rapidly, having reached a low at $21,404, and is currently trading slightly higher, at $21,770.
The drop could gain more traction if it extends past the bullish trend line drawn from the June low located at $17,592. This trend line is very close to the 50-day Moving Average and together the two elements create a confluence zone which will probably reveal the next direction.
Although the pair has picked up speed moving south, a bounce at the trend line is not out of the question. If this is the case, we will probably see a fresh attempt to break $25K. On the other hand, a break of the confluence zone will increase the chances of downtrend resumption. This means that $20,000 will be tested and if that happens, we will have a lower low, so the fragile uptrend that started in June will be invalidated.
For the time being, the bears seem to be in clear control and momentum is on their side. This increases the chances of a move below the 50-day MA and the trend line, making $20K a likely destination.
