Bitcoin to $20K likely as Fed minutes show more aggressive rate hikes

NEW DELHI (CoinChapter.com) — Bitcoin prices (BTC) risk a fall to $20,000 levels as the market reacts to the minutes of the Federal Open Market Committee (FOMC) meeting. The Federal Reserve discussed the possibility of a more hawkish policy stance to better fight inflation.

Minutes of the FOMC meeting state that most Fed policymakers agree on the need to increase interest rates over the next few meeting to help rein back inflation. However, some central bank members remained worried the rate hikes might hurt the recovery of the jobs market.

Moreover, some officials also noted that the Fed might have to target even higher interest rates depending on the “evolving economic outlook.”

Less aggressive tightening might be on the agenda if the economy dramatically slows down. Meanwhile, rising interest rates often trigger a period of market volatility across stocks, cryptocurrency, and commodities.

Bitcoin Not A “Hedge Against Inflation” Anymore?

Higher interest rates discourage borrowing, decreasing the amount of money in the markets. Less money in the markets often results in losses in investments due to the resulting volatility. With the FOMC minutes indicating more rate hikes in the future, the rest of 2022 is likely to remain choppy.

Before, investors considered cryptocurrencies like Bitcoin a hedge against inflation, low-interest rates, dollar devaluation, and other issues.

Also Read: Bitcoin week ahead Ep22: Dollar’s bullish return could put BTC en route to $25-26K next.

However, cryptocurrencies, especially Bitcoin, have recently behaved more like other risk assets (such as stocks). For example, BTC prices fell sharply in Nov 2021 after the Fed announced its plans to taper bond purchases and increase interest rates.

Crypto assets had been seen as an inflation hedge, but recently they have acted more like other risk assets such as stocks. Higher rates will be a headwind for crypto assets going forward.

Said Caleb Tucker, director of portfolio strategy at Merit Financial Advisors

Moreover, the world’s largest cryptocurrency reacted to the Fed’s actions even before the broad-based Standard & Poor’s 500 Index. Additionally, the Russia-Ukraine conflict has rattled markets, particularly the commodities sector.

The crisis’s deepening could result in global supply chain disruption, further exacerbating inflationary pressure.

BTC Bearish Pennant Forecasts Price to $20,000

Adding to the bearish headwinds against Bitcoin, BTC prices have formed a bearish technical pattern that forecasts a nearly 33% fall from current prices, called the bearish pennant.

Pennants are continuation patterns. The pattern forms after a large movement in an asset’s prices are followed by a period of consolidation with converging trendlines. Then, the asset breaks out in the same direction as the large initial movement.

Volumes play an important role in verifying the pattern. As per technical analysis rules, the consolidation should occur with lower volumes, while higher volumes should accompany breakouts.

The price target for pennants is calculated by applying the initial flagpole’s height to the point where the price breaks out from the pennant. As a result, BTC prices might fall to levels between $20,400 and $19,550, paring nearly 33% from current prices.

Also Read: Bitcoin mining hashrate rose 75% during BTC price decline from $69K to $30K — signs of next bull run?

BTC prices have struggled to overcome the $30,000 resistance for some time now. The world’s largest cryptocurrency might fall further with the bearish cues heading its way. However, the number of whale addresses (holding 100 to 1,000 BTC) is rising, as per data from on-chain intelligence firm Santiment.

🐳 As #Bitcoin continues treading water at $29.6k, the amount of key whale addresses (holding 100 to 1k $BTC) continues rising after the massive dumping from late January. We've historically seen a correlation between price & this tier's address quantity. https://t.co/SZ7A4WaD29 pic.twitter.com/nDmdGzFAXV

— Santiment (@santimentfeed) May 25, 2022

At the time of writing, BTC was trading at $29,125, down 1.35% on the day.