The Price of Bitcoin Could Fall If the Fed Increases Interest Rates

The price of bitcoin could continue to fall if the Federal Reserve increases interest rates, leading to higher unemployment.

Bitcoin's recent rebound to almost $22,500 is a welcome development, but it is important to remember that there are still risks of a "bull trap" in the long run. This is because Elon Musk and Cathie Wood have both warned of the potential for a deflationary crisis.

Cathie Wood: "Deflation in the pipeline" In an interview with CNBC, Ark Invest founder and CEO Cathie Wood said she believes deflation is coming.

Tesla CEO Elon Musk has suggested that a major interest rate hike by the Federal Reserve could lead to deflation in the United States. In a tweet over the weekend, Musk said that such a hike could increase the possibility of unemployment, as people would have less money to spend on goods and services.

If the past is any indication, the future looks bleak for Bitcoin as the Fed prepares to raise interest rates. History has shown that whenever the Fed raises rates, Bitcoin's price takes a hit, often declining by 50% or more. With rates set to go up in the next few months, it's possible that Bitcoin could see another sharp drop in value. However, some investors remain optimistic that the cryptocurrency will rebound despite these challenges.

The latest Bureau of Labor Statistics report shows that the jobless rate has risen to 3.7% from 3.5% in August. Even Alphabet (Google) warned that they could turn to layoffs soon to stay 20% more efficient. This is a worrying trend, as it indicates that the labor market may not be as strong as it has been in recent months. This could lead to more job losses in the coming months, as companies look to cut costs.

The Federal Reserve could raise interest rates further in order to bring inflation down to their desired target of 2%. This would be a positive development for the economy, as it would help to keep prices stable and encourage economic growth.

As of July, the U.S. consumer price index (CPI) was 8.5% year-over-year. However, economists are predicting that the August inflation data, scheduled to release on Sep. 13, will show a drop to 8.1%. This is attributed to a recent decrease in energy prices.

I believe that a hawkish Fed could lead to rising joblessness and an economic recession, similar to what Musk predicts about deflation. The Fed's 2% inflation target is still far from what is needed to boost the economy, and this could lead to a hard landing.

Wood's comments on the Manheim data indicate that she believes that the used car market is set to experience a significant drop in the next few years. This, in turn, could lead to a decrease in consumer demand for new cars.

Bitcoin could feel the pain of a deflation-led recession, with Ecoinometrics' analyst N suggesting that companies with cash holdings would not dip their toes in a volatile asset until the economy has bottomed. This could mean trouble for Bitcoin, as a prolonged recession could see companies and individuals lose confidence in the digital currency and move away from it.

I envision this paragraph as a news article discussing a recent event. In it, a man is explaining something to the reporter.

"From 2020 to 2021, there is a large number of new entrants in the space of digital assets, which pretty much doubled the total hodlings in treasuries. And as the market slowed down, everything stopped."
Bitcoin treasury holdings since 2020. Source: Ecoinometrics
I see Bitcoin's treasury holdings continuing to grow in 2020, as more and more businesses and individuals see the benefits of holding Bitcoin. This will help to further legitimize Bitcoin and drive adoption of the currency.

Investment service Q.Ai believes that retail investors could follow a similar strategy to that of institutional investors. Q.Ai notes that this could be a successful way to invest, as it has been for institutions.

If borrowing rates increase, people will have less money to invest in Bitcoin and other risky assets. This could lead to a decrease in demand for Bitcoin, and a corresponding drop in price.

Bitcoin could reach $14,000 by the end of the year, analysts say

It's possible that macroeconomic factors could cause Bitcoin's bearish technicals to play out, particularly on the daily chart. This could have a negative impact on the cryptocurrency market and send prices lower.

Bitcoin appears to have been forming an inverse-cup-and-handle bearish reversal pattern, confirmed by a flipped U-shaped price trend (cup) followed by a short uptrend (handle), all atop a common support level called the "neckline." This pattern indicates that Bitcoin's price is likely to fall in the near future.

Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain.

As a rule of thumb, an inverse cup-and-handle pattern's profit target is typically measured by subtracting the neckline level price from the maximum cup's height, as shown below. This technical analysis tool can be used to help traders estimate potential profits and make better-informed trading decisions.

BTC/USD daily price chart featuring inverse-cup-and-handle setup. Source: TradingView
The BTC/USD daily price chart is looking very bullish right now, with an inverse-cup-and-handle setup forming.

As BTC's price risks new multi-year lows below $14,000 in 2022, down about 37.5% from today's price, it is important to keep a close eye on the market. Although this may be a technical perspective, it is still important to be aware of the potential risks involved in investing in BTC.

Bitcoin could drop as low as $11,000 later this year, based on the historical volume around this level, according to the creator of trading suite DecenTrader. This would be a significant drop from the current price of around $13,000, but would still be well above the 2018 bottom of $3,000. Despite this potential dip, Filbfilb remains bullish on Bitcoin in the long term, predicting that it will eventually reach $100,000.

It is interesting to see the correlation between Bitcoin and the NASDAQ, especially given the current economic conditions. It will be interesting to see how these two markets develop over time and how they may be influenced by external factors.