FX.co ★ Bitcoin continues to decline amid Powell's speech: should we expect a downward movement to $20k?

Over the past few days, we have seen a decrease in trading activity in the market and local consolidation of the main cryptocurrency. Bitcoin was trading near the $22.4k level and turned into a stablecoin for a while. At the same time, the news background around the market continued to be negative, and investment activity was falling.

Subsequently, volatility increased in the cryptocurrency market due to Jerome Powell's speech before the U.S. Congress. Bitcoin reacted with a local fall, however the downward momentum was weak, which suggests that the local downward movement is over.

What did Powell say?

Powell's speech finally caused the markets to have unpleasant flashbacks in the fall of 2022. The official confirmed rumors that the peak rate will be higher than previously expected. This means that the indicator with 100% probability will reach a level above 6%.

The head of the Fed said the agency is ready to accelerate the rate hike if it is justified by the incoming data. The main reason for the next round of aggressive monetary policy was the strong labor market, which is slowing the USD deflationary movement.

Powell also confirmed that inflation is falling much more slowly than originally thought. As a result, the official expects that the path to easing monetary policy will be long and difficult. The Fed also sees a rate cut in 2023 as unlikely.

As a result of Powell's speech to the U.S. Congress yesterday, futures markets are pricing in a 50 basis point Fed rate hike in March. Overall, this is a negative signal that brings markets back to the serious liquidity problems of Fall 2022.

Also, this development fits in with the forecasts of most of the world's leading banks, which predict a stock market decline. If we analyze the situation in autumn 2022, it is clear that the greatest losses will fall on high-risk assets because of the Fed's monetary policy.

BTC/USD Analysis

The Bitcoin review should start with a powerful green candle formed by the U.S. dollar index on March 8. This is a clear signal about which asset will take over most of the investments in the near future. At the same time, Bitcoin, like SPX, has an inverse correlation with DXY.

Bitcoin has lost 2% of capitalization over the past 24 hours, and the weekly price drop has reached 7%. The cryptocurrency's trading volumes again fell below $25 billion, and the price retested an important support level at $22k.

The decline in the price of BTC was local in nature and was provoked by a surge in volatility. Players managed to raise liquidity below $22k, after which the price recovered above the round mark. It is likely that the collected liquidity will be enough for an upward movement to the upper boundary of the fluctuation channel.

The first targets for the upward movement of the cryptocurrency will be the $22.8k–$23k area, where the 0.382 Fibo level passes. In case of a successful breakdown and consolidation above this area, the price of the asset will continue to move towards the resistance area at $23.8k–$24.4k, the breakdown of which will open the way for the asset to $25k.

Results

Bitcoin has every chance of a local upward trend, at least to the level of $23k. At the same time, it is likely that we can expect another price decline as short volumes continue to grow. Therefore, the key task of BTC in the coming days will be to hold the $22k level as springboards for the movement to $22.8k–$23k.