Bitcoin showed weakness and dropped to its lowest level in the past week, 36% below its 200-day moving average of $32,000. This can be attributed to the growing anxiety while investors worldwide wait for a decision concerning the next interest rate hike from the Federal Reserve. Bitcoin approached its immediate next support level when it declined by 6% on Tuesday. Bitcoin’s RSI (Relative Strength Index), which is an indicator that measures the speed and magnitude of price movements, is decreasing as the price plunges. It has fallen to 41 which according to most analysts is a fair level. A level of 70 and above often indicates that an asset is overbought while a level at 30 or below indicates an oversold asset.
Investors watched their hope for a continued bitcoin recovery crumble as the asset traded unchanged for an entire day. The price has mostly fluctuated between $21,500 and $20,500. While some analysts believe negative news after today’s FOMC meeting could mean more downside for bitcoin, others have a more positive outlook and believe that the interest rate hike will either have a neutral or even positive effect on bitcoin.
Bitcoin saw a little recovery in the early hours of this morning. Although it is still in a bearish zone, it is currently trading above the $21,000 level and below the 100 hourly simple moving average. The next major key resistance is at the $21,650 zone but if bitcoin fails to start a recovery wave above the $21,500 level it could continue to move down. The next major support levels are at $21,000 and then $20,750.
The Implication of Today’s FOMC Announcement
After trading quite poorly yesterday when compared to last week’s high of over $24,000, the bitcoin price regained traction and reclaimed the $21,000 level. Bitcoin rallied to almost $23,000 over the weekend, but this bullish momentum did not last long as the bears took over and bitcoin experienced another severe price drop.
Ahead of the Fed’s decision to raise interest rates, investors are anticipating more volatility for bitcoin. Griffin Ardern, a volatility trader at crypto asset management firm Blofin, said that he expects bitcoin’s price to drop by 10% after the Fed rate hike.
Recently, there has been an increase in the put/call ratio, which divides the volume of purchased puts by the volume of purchased calls over the last 24 hours. The ratio can be used to measure and monitor trader sentiment. This increase implies that traders are attempting to protect themselves from anticipated declines in the bitcoin price.
Some market spectators are optimistically predicting that if the most pessimistic expectations of the Fed’s meeting aren’t confirmed, the bitcoin price will see a relief rally.
Are We Re-Experiencing Past Events?
While it is never a good idea to look at a sole technical indicator, it is interesting to view bitcoin’s previous history whenever the RSI approached 70. With the current RSI level at 41, on July 19 it approached 70. This has only happened on two other occasions in 2022, on February 7 and March 27 with the RSI being at 70 and 75.34 respectively. Thirty days after those occasions, the bitcoin price declined by 13% and 16% with the RSI falling to 40.52 and 41.78.
Ahead of the Fed’s interest rate decision, the bitcoin price seems to have found consolidation and investors wait to see what effect the Fed’s meeting will have on bitcoin’s price. Most analysts expect volatility, quite a number expect bitcoin to be unfazed by the news and a few optimistically expect the price to soar as part of a relief rally.
