Bitcoin (BTC) traders had seen a rebound from the lows of 2022, and reached nearly $25K per bitcoin earlier this month. However, the price of Bitcoin is making a reversal now, and bulls have failed to push the price any higher. This has made many traders and investors worried that the worst sell-off has yet to come.
The price of Bitcoin formed a bottom on June 17 when the price reached a low of $17,581. It was widely anticipated at that time the price may go even lower when it broke the major support level of $20K; the next important psychological support level was at $15K, but the price went from below $20k to $25,177 on August 18—this was the highest level in nearly nine weeks.
Speaking from a technical perspective, bears got a lot more worried when the BTC price violated an important price point marked by the 50-day Simple Moving Average (SMA) on the daily time frame. I consider the 50-day SMA an essential price ingredient in determining a trend; when the price crosses above this average, bulls are in control of the price, and odds are staked in favor of higher highs. However, when the price falls below this critical moving average, it is pretty clear that bulls have lost control of the price, and bears are driving the price action.
Currently, the BTC price is around the $20K support level, but trading below the 50-day SMA. This is keeping some hopes alive among BTC bulls that the current violation may be fake, and if the price doesn’t break its current support of 20K, the path of the least resistance is skewed to the upside.
However, should the price break below the 20K price point, I expect the price action to be highly violent, and it is highly likely that the bulls may not be able to stop the sell-off near the lows of this year. The price points to watch out for are $15K (psychological support), followed by $13,198K (the low of Nov 2020), and $10,760 (the low of September 2020).
What Can Traders Do?
If you are a HODLER, then you may not be that concerned if you believe that BTC is going to the moon, and that it will only a matter of time before the price action will correct itself and goes well beyond the all-time high.
But if you are a trader with bitcoin exposure and are concerned about a potential price correction, then one could always use Contract of Future Differences (CFDs) options to hedge your risk. Remember, CFDs are a highly leveraged product, and shorting bitcoin needs would require rigid risk management as BTC is a kind of beast that can continue to move higher for an extended period of time. For instance, from October 2020 through March 2021, we had no negative months, and the price moved from 10,760 to 61,693.
The Main Event To Watch
Bitcoin more recently has formed a close correlation with the Fed’s monetary policy, and this means that as the Fed tightens its monetary policy, we see the BTC price moving lower. The crash in the BTC from its all-time has a lot to do with this, and this correlation between the Fed’s monetary policy and the BTC price has become stronger recently. The Jackson Hole Symposium is an event where the Fed will very much lay out their monetary policy, giving people a better idea in terms of the pace of interest rate hikes, which makes the dollar index stronger and the BTC price weaker.
Conclusion
For the past two days, the BTC’s daily price range has narrowed enormously, and this is an indication that the price is likely to capitulate very soon. The Fed's upcoming event can provide the catalyst for the price to move in either direction, up or down, and that would set the next uptrend and or a new massive crash in the BTC price.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Naeem Aslam
I am a former Hedge Fund Trader with over 15 years of experience in investment banking. During my early career, I was awarded a national award (Young Irish Broker) in 2010. Over the years, I have worked with Bank of America in equity trading and with Bank of New York in hedge fund trading. I specialize in Blockchain technologies (cryptocurrencies and digital assets) and Sustainable Investments. In my career thus far, I have also extensively covered Equities, Commodities and Forex.
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