Bitcoin price risks massive dip below $20K amid FOMC rate hike scare

YEREVAN (CoinChapter.com) – Bitcoin (BTC) price has dropped 13% in a week to reach over $21,100 this July 27, primarily due to fears that the Federal Reserve would increase its benchmark rates by another 75 bps in their next meeting.

Another Bitcoin price crash ahead?

Bitcoin has been trading within the “bear flag” pattern since mid-June, as CoinChapter reported earlier. The setup typically forms after a sharp drop. Notably, it predicts another leg down after a period of consolidation within two parallel trendlines that take the price slightly higher.

Moreover, the Flag forecasts a drop equal to the sharp drawdown preceding the setup. Thus, Bitcoin’s target price would be approximately $12,000, or over 40% lower than the current value.

Expert predictions bearish

Mark Cuban, the Shark Tank billionaire who owns the NBA team Dallas Mavericks, backed the bearish outlook, albeit citing a different reason.

He warned his followers that the SEC would regulate crypto tokens, which could be a “nightmare.” Criticizing the Securities and Exchange Commission (SEC), the entrepreneur bashed their enforcement-focused approach, which could hurt the crypto market.

Think this is bad? Wait till you see what they come up with for registration of tokens. That's the nightmare that's waiting for the crypto industry. How else do you keep thousands of lawyers employed and create reasons to ask for more taxpayer money? https://t.co/eoDAiyDxlR https://t.co/mjr9LxnDZB

— Mark Cuban (@mcuban) July 23, 2022

Also read: Bitcoin Price Forms Bullish Breakout Pattern, Why Trend Remains Positive. 

Additionally, Katie Stockton, the managing partner at technical research firm Fairlead Strategies, commented on the alpha crypto’s bearish prospects.

Bitcoin briefly got above its 50-day moving average last week before pulling back in a reaction to short-term overbought conditions. The primary trend in Bitcoin is lower, noting the downward sloping 200-day moving average, and negative long-term momentum keeps growing.

said the expert.

The said “negative long-term momentum” is also backed by the low expectations from the upcoming FOMC meeting.

FOMC meeting and why it’s important for Bitcoin price

The FOMC is responsible for setting the target interest rate and will hike the rates amid the growing inflation. In detail, lowering interest rates makes borrowing money cheaper, stimulating consumer and business spending. However, the said process could result in inflation.

Also read: Tesla dumps $936M worth of Bitcoin – what’s ahead for BTC price?

Thus, when inflation grows beyond estimates and threatens the economy, the Fed hikes the interest rates, making borrowing money more expensive. This slows the economy and, by extension, the inflation growth rate, as consumers and businesses have less disposable income.

Interest rate hikes could drop Bitcoin along with stocks

Consulting firm Eight Global explained the interest rates’ relevance for the crypto market, pointing out Bitcoin’s correlation with the stock market.

Now, why is the federal funds rate important for crypto?

Because crypto is correlated to the stock market, and the stock market is impacted by the federal funds rate.

Rising rates hurt the performance of stocks while lowering rates make stocks more interesting as investment.

— Eight (@eight_global) July 26, 2022

An increase of 75 bps is expected by the majority and is the most likely outcome. A 75 bps hike will either have a neutral or bullish outcome for stocks and crypto. An increase of 100 bps is less likely, but it’s still on the table. A 100 bps hike can be considered very bearish for risk assets.

concluded Eight Global.

Also read: Inflation at 9.1% deflates Bitcoin’s recovery hopes – what to expect?

Bitcoin price could fall below the $20,000 support as traders’ attention turns to the FOMC meeting on Wednesday. Eight Global experts asserted that the crypto market would suffer more significantly if the Fed hiked the interest rates at 100 bps instead of the expected 75 bps.