3 Reasons Why The Bitcoin Price May Keep Going Down

The price of bitcoin (BTC) recovered modestly on August 20, but remained on track for its worst weekly performance in the last two months..

Bitcoin hash ribbons emit a background signal

On the daily chart, BTC price is up 2.58% to $21,372 per token, but is still down nearly 14.5% so far this week, its worst weekly performance since mid-August. Nevertheless, some on-chain indicators suggest bitcoin’s correction phase could be coming to an end.

That includes Hash Ribbons, a metric that tracks bitcoin’s hash rate to determine whether miners are in accumulation or capitulation mode. As of August 20, the metric is showing that the miners’ capitulation has ended for the first time since August 2021what could cause price momentum to change from negative to positive.

Bitcoin hash ribbon. Source: Glassnode

Nonetheless, bitcoin has been unable to shake off a flurry of prevailing negative indicators, ranging from negative technical setups to its continued exposure to macro risks. Therefore, despite bullish on-chain metrics, bearish continuation cannot be ruled out.

Here are three reasons why the bottom of the bitcoin market may not be close yet.

BTC Price Rising Wedge Breaks

The drop in bitcoin price this week has caused a rising wedge to break, which suggests more losses for cryptocurrencies in the coming weeks.

Rising wedges are bearish reversal patterns that form after price rises within an ascending, contracting channel.but are resolved after the price breaks downwhat could result in a fall equal to the maximum height of the wedge.

Daily price chart of the BTC/USD pair with the “rising wedge” breakout setup. Source: TradingView

Applying the technical principles in the above BTC chart presents $17,600 as the breakout target of the rising wedge. In other words, bitcoin price could drop about 25% in september.

Bitcoin Bulls Are Misjudging the Fed

The price of bitcoin had risen by about 45% during its rising wedge formation.after bottoming locally around $17,500 in June.

Curiously, the period of bitcoin’s upward movements coincided with growing investor expectations that the inflation has peaked and that the Federal Reserve would start cutting interest rates in March 2023.

The expectations stemmed from Fed Chairman Jerome Powell’s statement at the FOMC on July 27.

Powell:

“As the monetary policy stance tightens further, it may be appropriate to slow the pace of increases while we assess how our accumulated policy adjustments are affecting the economy and inflation.”

Nevertheless, latest Fed dot plot shows most officials expect rates to hit 3.75% by the end of 2023before falling back to 3.4% in 2024. So the prospects for rate cuts remain speculative.

Implicit Fed funds target rate. Source: Federal Reserve

St. Louis Fed President James Bullard also noted that would support a third consecutive increase of 75 basis points at the central bank’s policy meeting in September. The statement is in line with the Fed’s commitment to reduce inflation to 2% from the current level of 8.5%.

In other words, Bitcoin and other risky assets, which fell into bear market territory when the Fed began an aggressive tightening cycle in March, should remain under pressure for years to come..

If history is any indicator…

The current recovery of the price of bitcoin risks becoming a false bullish signalgiven the asset’s similar rallies during previous bear markets.

Weekly chart of the price of the BTC/USD pair. Source: TradingView

BTC price bounced almost 100% —from about $6,000 to more than $11,500— during the 2018 bear market cycleonly to completely wipe out the gains and drop towards $3,200. Notably similar bounces and corrections also occurred in 2019 and 2022.

Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.

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