Today, Fed policymakers acknowledged the gravity of the trade war and the falling stock market. In a nutshell, the Fed has signaled that it stands ready to cut rates and provide stimulus if necessary.
As a result of these statements, the stock market rallied, and Bitcoin (BTC) on BitMEX fell to near $7,500. That’s support from a Fib speed line. Previously, a break of that speed line triggered the final phase of the previous rally (Figure 1). So, it may just be a natural correction to return and retest that line.
Bitcoin (BTC) may be going down because the idea of the Fed coming to the rescue is reducing demand for Bitcoin (BTC) as a safe haven. This, along with emotional buyers being flushed out of the market, is only adding to selling pressure in Bitcoin (BTC).
Looking at Bitcoin (BTC) on Coinbase (Figure 2), the recent downdraft has created a rollover in stochastics on the Bitcoin (BTC) two-day chart. As a result, Bitcoin (BTC) may be entering an extended consolidation phase. That consolidation could take time to work itself out. Major support on the Coinbase chart is near $7,400.
If Bitcoin (BTC) falls below the Fib speed line on the Coinbase chart near $7,400, there could be a deeper correction.
Net-net: We are forced to admit that the Fed has changed the technical picture in Bitcoin (BTC).
From a macro point of view, we do not believe that there is anything “wrong” with the thesis that Bitcoin (BTC) is still in an uptrend. During 2017, there were multiple major drawdowns in Bitcoin (BTC). So, these corrections — while unpleasant — can be a normal part of an up move.
Bottom Line: The Fed’s willingness to step in to help the economy may be a sign of panic on their part and on the part of the President Trump. There may be a major problem in the financial system as a result of the trade war. Global markets don’t yet know the full nature of the problem. That level of uncertainty can be toxic for all risky assets, including crypto. However, we still believe that Bitcoin (BTC) is an alternative asset class that will be a cornerstone of portfolios long term.
Agree? Disagree? The Crypto.IQ Trading Desk has had the call on this correction.
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