Bitcoin Shows Resilience Amid Rate Cut Hopes, but Technical Signals Suggest Looming Sell-off
Summary:
Bitcoin's price is showing resilience at around $42,000, echoing gains in the gold market. Investor confidence in a potential Federal Reserve's pivot on interest rates is fueling the price surge. However, technical indicators suggest a potential sell-off, with the risk increasing around the 0.5 Fib line near $42,000. A looming sell-off period is also suggested by on-chain signals, as Bitcoin's Net Unrealized Profit and Loss (NUPL) rises.
Bitcoin's (BTC) price is wavering around the $42,000 mark as of December 5, demonstrating resilience following last week's comments on interest rates by Jerome Powell. The surge in BTC's price as the week commenced was mirrored by bullish movements in the gold market, a classic safe-haven asset. The price of gold soared to a record high on December 1, possibly prompted by anticipations of rate reductions, providing a boost to both Bitcoin and gold.
Investor confidence around an impending shift in the Federal Reserve's stance on interest rates has grown substantially after Powell's address on December 2. He declared that interest rates had reached a satisfactory level to effectively counteract inflation, although he abstained from making predictions about the time frame of this stringent policy's relaxation - a caution that was widely overlooked in the markets.
As an example, the CME's Fed futures fund rate tracker was projecting over a 50% possibility of a rate reduction by March 2024 on December 5. Bitcoin has typically responded positively to cut rates in the past, as these reduce the attractiveness of U.S. Treasury investments due to diminished yields. On the flip side, they make riskier, non-yielding assets such as gold, Bitcoin, and stocks more appealing to investors.
The probability of the U.S. approving the first Bitcoin exchange-traded fund (ETF) by January 2024 is also fuelling Bitcoin's current upward momentum. However, Bitcoin's robust price climb in past months has resulted in a significant divergence with its daily relative strength index (RSI), signifying a slowdown in buying momentum at the peak price. From a technical standpoint, this bearish divergence increases the likelihood of a sell-off.
The risk of offloading Bitcoins escalates around its 0.5 Fib line near $42,000, a level that has switched from support to resistance. Taking into account these adverse indicators, Bitcoin's price faces a strong possibility of falling towards $35,780 by December's end. This downward target largely coincides with Bitcoin's 0.382 Fib line and its 50-day exponential moving average (50-day EMA).
Additionally, in-chain signals are also hinting at a looming sell-off period. For instance, Bitcoin's Net Unrealized Profit and Loss (NUPL), which measures the difference between the market cap and realized cap divided by the market cap, is on the uptrend. Increased NUPL readings above "0" suggest that a larger number of investors are profitable, also raising the chances of profit-taking and subsequent price pullbacks.
This news piece does not constitute investment advice or any trading recommendations; every investment or trading action entails risk. Readers are advised to conduct independent research prior to making any decision.
Published At
12/5/2023 5:14:07 PM
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