Analysts have alerted multiple times about the presence of a bear flag pattern in the Bitcoin price chart that, if broken, could signal that the cryptocurrency might be due for some more pain.
A bear flag pattern is formed whenever the price of a security takes a breather after a sharp downtrend. In this regard, the price of BTC has been dropping steadily since November last year amid multiple negative catalysts including expectations about an upcoming tightening in the monetary policy adopted by major central banks around the world and, later on, due to the war between Russia and Ukraine.
This decline pushed BTC below its 200-day simple moving average but the price eventually bounced after it hit bottom at around $32,630 per coin. However, this temporary technical rebound failed to move above the 200-day SMA and that is a technical event that favors a short-term bearish outlook for BTC.
As of today, the price has already broken below the bear flag. If the decline continues in the next two or three sessions, Bitcoin could be poised to retest its 2022 lows pretty soon and that would result in a total downside risk of around 16%.
Overall, for long-term holders, the price might seem more attractive if they expect that some of the market’s boldest forecasts will come to fruition in the next one to three years. However, for those whose investment horizon is quite short, the technical situation doesn’t look too promising at the moment.
Why Are the Fed’s Actions So Important for BTC?
Interest rates, inflation, and the size of the Federal Reserve’s balance sheet have a significant influence on the valuation of risky assets.
Interest rates, on the one hand, determine how much investors expect to receive from low-risk assets such as US Treasury bonds and other similar securities. If these low-risk alternatives start to offer higher yields, investors will prefer to park their money with them rather than exposing it to the volatility of riskier asset classes such as equities and cryptos.
Therefore, if interest rates rise, the valuation of risky assets will tend to decline. That said, the extent of such decline will depend on how high-interest rates go.
Meanwhile, higher inflation means that consumers and investors will look for ways to protect the purchasing power of their money. Right now, the purchasing power of the US dollar is deteriorating amid the country’s persistently high inflation readings.
If policymakers fail at containing this escalation in prices, demand for Bitcoin (BTC) and other assets considered a store of value may rise and that could have a positive effect on the valuation of the digital asset.
Finally, a reduction of the Federal Reserve’s balance sheet will reduce the market’s overall liquidity. Lower liquidity typically means that less money is chasing the same number of assets and that tends to reduce prices down the road.
Even though it is decentralized, Bitcoin is still subject to the influence of macroeconomic variables in the same way as other assets.