Bitcoin price has jumped modestly this week, helped by the rising odds that the Federal Reserve will cut interest rates on Wednesday, and as ETF inflows accelerated. BTC jumped to $114,438, up by 6.45% from the lowest point this month. This article explores the top reasons the BTC price may crash soon.
Bitcoin Price Has Formed a Giant Wedge Pattern
The first main reason why Bitcoin price may crash soon is that there are signs that the uptrend is losing steam. The chart below shows that the Average Directional Index (ADX) has retreated to 24 from the year-to-date high of 60. This is notable since this is one of the most common trend indicators in technical analysis.
Worse for Bitcoin is that it has formed a rising wedge pattern, which comprises of two rising and converging trendlines. With these two lines nearing their confluence, there is a possibility of a bearish reversal, potentially below $100,000.
The Relative Strength Index (RSI) has formed a bearish divergence pattern. This pattern happens when the RSI is forming a descending channel as the price rises. It often leads to a strong bearish breakout.
Federal Reserve Cut Could be a ‘Sell the News’ Event
The other major reason why Bitcoin price may crash is that the Federal Reserve cut could be a ‘sell the news’ event. This is a situation where an asset rallies ahead of a major event and then crashes when it happens.
READ MORE: How Will Fed Interest Rate Cuts Affect Circle Stock Price?
In this case, a Fed interest rate cut, whether 0.25% or 0.50%, has already been priced in by market participants. As such, there is a possibility that the coin will dump once it happen. A top JPMorgan analyst has already warned that such a scenario is possible, saying:
“If the Fed follows through on a widely expected interest-rate cut at its Sept. 17 meeting, that “could turn into a ‘Sell the News’ event as investors pull back.”
The other potential reason for this is that the Fed may deliver a hawkish interest rate cut because inflation remains substantially high. A report released showed that the headline consumer price index (CPI) rose to 2.9%, while the core figure rose to 3.1%.
Bitcoin Treasury Company Woes Could Slow Demand
Meanwhile, the Bitcoin treasury industry that has contributed to the rally is facing major challenges as most stocks plunge. Metaplanet stock has plunged by over 50% from its highest point this year. Similarly, Strategy (MSTR) is in a bear market, and so are most of the others.
With their stocks falling, there is a likelihood that some of them will slow their Bitcoin purchases, which may impact the overall demand. For example, Strategy had to change its mNAV principle to continue selling shares to buy Bitcoin.
To be clear: any Bitcoin price crash could be brief, as it has demonstrated many times in the past.
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