Bitcoin Market Oscillates Amid Interest Rate Changes & Potential ETF Approval
Summary:
Bitcoin's price sustains a cloud of uncertainty, remaining steady above $26,000 following last week's Federal Reserve decision to keep interest rates unchanged. Increased interest rates usually depreciate Bitcoin's value, leading to a stronger inverse relationship with the U.S. dollar. With the potential approval of a Bitcoin ETF by the U.S. Securities and Exchange Commission, optimism remains in the market. Long-term Bitcoin holders continue to exhibit strong confidence in future price hikes, while short-term holders seem to be securing their profits. However, a possible head-and-shoulder pattern may drive Bitcoin's price downwards in October, reaching an estimated $25,400.
The digital cryptocurrency, Bitcoin (BTC), remains steady above $26,000 as of September 25, displaying signs of instability in the wake of the recent decision by the Federal Reserve to keep interest rates unchanged. The question arises, could this decision by the Fed to potentially drive Bitcoin's price downward? On September 21, the Federal Reserve officials resolved to leave interest rates as they are while indicating that a rate hike might be on the horizon in 2023. Since then, Bitcoin's value has decreased by 4.25%.
BTC/USD daily price chart. Source: TradingView
Increased interest rates often result in a depreciating market for non-yielding assets like Bitcoin. Conversely, they bolster the appeal of safer investments, particularly the U.S. dollar. This dynamic is reflected in the negative correlation of Bitcoin and the U.S. dollar index, which recently dropped to an all-year low of -0.73, indicating a strengthening inverse relationship.
BTC/USD versus DXY weekly correlation coefficient. Source: TradingView
However, optimists are pinning their hopes on the U.S. Securities and Exchange Commission's (SEC) potential approval of a Bitcoin ETF (Exchange Traded Fund) in October. They draw parallels to the gold market where the introduction of the first gold ETF in 2003 led to a whopping 300% surge in the gold price within the subsequent years. The combination of these factors has resulted in one of the calmest periods in Bitcoin's market history. Its Historical Volatility Index, which measures price volatility, has dropped to 13.39 this month. To put this in perspective, the Index's record high was 190 back in February 2018.
Bitcoin historical volatility index monthly performance. Source: TradingView/MacnBTC
Despite the Federal Reserve's tight monetary stance, the confidence of long-term Bitcoin investors (LTH) remains robust as indicated by the net profit/loss ratio (NUPL) - the blue zone in the chart below. As long as NUPL values stay above zero, the Bitcoin market is in an overall profitable state, illustrating that most LTHs have held on to their tokens throughout 2023 in anticipation of future price hikes. In contrast, short-term holders (STHs), who usually react rapidly to market fluctuations, have shown a significant decrease in NUPL values in 2023 - the red zone. This implies that these speculative traders have been profit-taking and/or buying more BTC at the increased prices.
Bitcoin net unrealized profit/loss by cohort. Source: CryptoQuant
Many Bitcoin commentators predict that the digital currency will embark on a prolonged bull run, which is set to continue throughout 2024. Notably, Bitcoin market analyst Rekt Capital sees the current static trend as a valuable opportunity to buy ahead of the Bitcoin halving set for mid-2024. The analyst points out that the halving events have previously contributed to the bullish Bitcoin market.
BTC/USD weekly price chart. Source: TradingView/Rekt Capital
Meanwhile, market expert “Moustache” draws attention to the reliable Megaphone pattern in the Bitcoin market, with upward projections exceeding $100,000.
BTC/USD weekly price chart. Source: TradingView/Moustache
On a more imminent note, a bearish bias is emerging due to a possible formation of a Head and Shoulders (H&S) pattern. This pattern occurs when the price forms three consecutive peaks on a shared support line with the central peak being the highest. If the value descends below the support line, the prediction is a further drop to a level mirroring the highest peak's height. Under this pattern, one can anticipate a dip to around $25,400 in Bitcoin's price at some point in October.
BTC/USD four-hour price chart. Source; TradingView
This article does not offer any investment advice or recommendations. As with all investment and trading ventures, there are inherent risks, and readers should carry out due diligence before making a decision.
Published At
9/25/2023 11:18:28 AM
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