The price of Bitcoin (BTC) has experienced a three-day decline, dipping 8% below $27,500 on May 9th. Factors such as increased transaction fees, bearish signals on risk-on markets by legendary investor Warren Buffett, and technical analysis, play a role in this downturn.
From a technical standpoint, the short-term risk of BTC’s price dropping below $25,000 is evident in the head-and-shoulders (H&S) pattern. This pattern consists of three peak formations above a common support level. A decisive break below this support level, which lies near $27,500, could potentially lead to a fall of around 10% to $24,750 by June. Independent market analyst Cold Blooded Shiller also predicts a decline to $25,000 within the next two days.
However, if there is a high-volume rebound from this H&S support, the bearish setup would be invalidated, and a recovery towards $30,000 might be back in motion.
Another significant factor affecting Bitcoin’s price decline is the upcoming release of the U.S. inflation data on May 10th. Core consumer price index (CPI) projections for April 2023 suggest figures near 5.5%, which could push the Federal Reserve to continue its interest rate hikes to bring inflation down to the target 2%. Higher interest rates usually decrease investors’ interest in riskier, zero-yielding assets such as Bitcoin.
Regardless of this, Jerome Powell, the chairman of the Federal Reserve, stated that they would pause rate hikes in June to assess the U.S. economy’s response to higher interest rates and the ongoing banking sector crisis. This move denies the possibility of rate cuts despite the Fed funds futures’ data suggesting at least five rate cuts between May 2023 and January 2024—a potential buy-signal for Bitcoin investors.
With Bitcoin’s price behaving weakly and out of line with its usual correlations, there is still uncertainty surrounding the future trajectory of this leading cryptocurrency. Observing upcoming economic developments and market reactions to data releases will be crucial in predicting the short-term direction of Bitcoin’s price. While its fall below $25,000 is a possibility, many factors can still contribute to a recovery towards $30,000.