The impact of Federal Reserve policy and Bitcoin’s higher timeframe market structure suggest that BTC price is not yet ready for a trend reversal.
Bitcoin (BTC) price continues to chop below the $22,000 level and the wider narrative among traders and the mainstream media suggests that a risk-off sentiment is a dominant perspective ahead of this week’s Jackson Hole summit.
Over the three-day symposium, the Federal Reserve is expected to clarify its perspective on inflation, interest rate hikes and the overall health of the United States economy.
In the meantime, traders on Crypto Twitter continue to fantisize about a “Fed pivot” where interest hikes will be curtailed below 0.25 basis points and some form of monetary easing re-emerges, but the likelihood of the Fed adopting a dovish point-of-view in the short-term seems unrealistic, given the central bank’s 2% inflation target.
Regarding Bitcoin’s most recent price action, an old saying among traders is:
“Fade the short-term trend in favor of the long-term trend.”
From a bird’s-eye-view, BTC price is in a clear downtrend with a four-month long stretch of recurring bear flags that continue to see continuation.
The power of the hammer. pic.twitter.com/ayxELfsBdz— il Capo Of Crypto (@CryptoCapo_) August 23, 2022
Sure, the on-chain data hints that maybe price is at a bottom.
Of course, aggregate volumes and certain on-chain data looking at whale and shrimp BTC addresses may point toward accumulation.
Yeah, the open interest in BTC and Ether continues to reach record highs and this adds fuel to the bullish ETH Merge and ETH proof-of-work hard fork tokens narrative triggering a juicy short squeeze on BTC and ETH.
Any of those things can happen, but beware the narrator of those hopium-infused dreams and remember that the trend is always a good friend that a trader can lean on.
As unpleasant as it might sound, the trend is down. Bitcoin continues to meet resistance at its long-term descending trendline and the price has failed to secure resistance at key moving averages like the 20, 50 and 200-day MA.
Each price drop is simply creating a flag-pole, and the ensuing “consolidation” creates the flag of the bear flag continuation pattern. As the pink boxes on the daily chart shows, BTC price simply trades within a defined range before breaking below it into underlying liquidity shown by the volume profile visible range and liquidity maps.
Essentially, there’s “nothing to see here” until price paints a few daily candles that reflect higher highs, i.e., BTC needs to clear $25,000 and close that volume profile gap in the $25,000 to $29,000 zone.
From there, one would either want to see consolidation within that new higher range, or continuation of a trend reversal where the 20-MA and 50-MA function as support. As mentioned earlier, of course there are a ton of other data points that make a strong case for why the current price range is a buy zone, but what may be true for one trader is not necessarily the case for all.
Some investors can afford to open swing longs here and lower and ride it out because they are flush and that’s part of their plan. Others have a smaller purse and can’t afford the lost opportunity cost of being locked into a red position for months on end. Traders are always encouraged to do their own research, make their own thesis and manage risk in a way that is best for their situation.
Jackson Hole is coming up and the Fed needs to continue rate hikes until inflation and other metrics are under control. Equities markets remain tightly correlated with Bitcoin price, so the tell will be whether or not SPX and DJI continue to steamroll higher, or if future actions from the Federal Reserve begin to put a damper on the recent bullish momentum.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.