FX.co ★ Bitcoin is a bubble which is set to swell

Bitcoin plummeted last week and has not been able to recoup losses since then. Meanwhile, everything looks like an ordinary technical correction. Once it is complete, the flagship cryptocurrency is widely expected to resume its climb. Let me underscore two points. First, the price has fixed below support of $46,600 and has not been able to rebound above it. Second, the price has fixed below the upward channel. Thus, from my viewpoint, the odds are that the correction scenario looks true. Meanwhile, crypto traders are trying to puzzle out what direction BTC will take. Few crypto analysts dare to explain why BTC has appreciated over $20,000 in the last two months. Their argument that demand for the crypto has increased is far-fetched. Most analysts share the bullish long-term outlook for BTC and project the crypto to skyrocket to $100,000 per token.

Let me remind you that the crypto market heavily depends of the Federal Reserve over the last one and half a year. The thing is that the US central bank is still pumping up the domestic economy with cash. It goes without saying that massive cash injections do not evaporate but are being accumulated in markets, in particular, in the stock and crypto markets. They have grown greatly during the global crisis. Therefore, when the Federal Reserve terminates its monetary stimulus in full, the assets like Bitcoin could halt its rally. However, this could happen in a year or in two years. Lately, the US economy has been sending signals of a slowdown. In this context, the Fed's plans of tapering QE could be delayed until later. In other words, a lot of things depend on the Federal Reserve.

But this is not the only factor. Bitcoin is frequently termed an entirely speculative asset. Experts and investors reckon that Bitcoin will hardly be used as payment for coca cola or petrol. At the moment, it is still unclear what features make Bitcoin better than conventional fiat money as a means of payment. Definitely, Bitcoin is indeed a lucrative investment instrument. No wonder, a lot of market participants are ready to invest in it. Recently, more and more influential central banks and governments introduce tough regulations and taxes on crypto investments.

They pursue the polar opposite strategies. High-income nations with advanced economies see Bitcoin as a threat to their stability, financial systems, and national currencies. Hence, they aim either to gain revenue from the crypto industry or crack down on it (China, the US). In contrast, low-income nations with emerging markets view Bitcoin at least as a means to prop up their economic conditions, if not a lifebuoy (El Salvador). All in all, crypto legislation will get stricter around the world in the not-too-distant future. Such prospects raise doubts about a further rally of the most popular digital token. Thus, all traders are recommended to analyze carefully the technical picture to have a clear understanding of an ongoing trend before making any trading decision.

According to a 4-hour chart, the overall trend is clearly bearish. The price went down below the Ishimoku cloud, the critical line of the uptrend channel, and the level of $46,600. The slump on September 7 could become the starting point of a new long-lasting downtrend. To sum up, I expect BTC price to fix below $43,852 in the nearest days and a further decline towards $40,746. At the same time, if the buyers manage to push BTC above $46,600, the crypto will be able to resume the uptrend.