Bitcoin has been experiencing a bearish trend for the past four days, with technical patterns indicating that the cryptocurrency’s price could drop below $25,000. The decline is attributed to several factors, including higher transaction fees and bearish signals from legendary investor Warren Buffett. BTC’s price has fallen by 8% from its local high of $29,850 established three days ago, and the dip was accompanied by a rise in trading volumes, suggesting that the move has momentum behind it. However, the question remains: will this be a short-term downtrend, or is there more room to fall?
From a technical standpoint, Bitcoin’s head-and-shoulders (H&S) pattern suggests that the cryptocurrency’s price could drop below $25,000 in the short term. The downside target is based on three peak formations atop a common support level, with the middle peak, called the “head,” being taller than the other two. As per technical analysis, a decisive break below the H&S support level near $27,500 could result in the price falling by as much as the pattern’s maximum height, i.e., the distance between the head and the support level. This raises the possibility of Bitcoin dropping to $24,750 by June, down about 10% from current price levels. Furthermore, independent market analyst Cold Blooded Shiller anticipates the Bitcoin price declining to $25,000, a former weekly resistance, within the next two days.
However, a high-volumed rebound from the H&S support would invalidate the bearish setup, and a recovery toward $30,000 would be back on the table. The decline in Bitcoin’s price comes in the days leading up to the release of the U.S. inflation data on May 10. The core consumer price index (CPI), which excludes food and energy, for April could come near 5.5%, almost the same as the previous month, according to Bloomberg. This persistent CPI reading means the Federal Reserve would need to continue its interest rate hikes to bring inflation down to its preferred target of 2%. Higher interest rates tend to decrease investors’ appetite for riskier zero-yielding assets like Bitcoin, a fundamental that aligns with the H&S price target for BTC/USD as mentioned above.
However, Jerome Powell, the chairman of the Federal Reserve, said last week that they would pause rate hikes in June to study how the U.S. economy has responded to higher interest rates and the ongoing banking sector crisis. He denied the possibility of rate cuts, despite the Fed funds futures’ data expressing the likelihood of at least five rate cuts between May 2023 and January 2024. Bloomberg economists believe that neither April’s CPI nor PPI prints will be reassuring, with both expected to show headline inflation accelerating.
In conclusion, Bitcoin’s price has been on a downward trend for the past four days, with technical patterns indicating that the cryptocurrency’s price could drop below $25,000 in the short term. The decline is attributed to several factors, including higher transaction fees and bearish signals from Warren Buffett. The release of the U.S. inflation data on May 10 could further affect Bitcoin’s price, as higher interest rates tend to decrease investors’ appetite for riskier assets like Bitcoin. However, Jerome Powell, the chairman of the Federal Reserve, has denied the possibility of rate cuts, despite the likelihood expressed by Fed funds futures’ data. The situation remains unpredictable, and investors are advised to exercise caution.