Bitcoin Price on The Verge  of a Crash Despite Fed Rate Cuts

Bitcoin price has been on the rise for almost two consecutive weeks. The resilient exchange-traded funds (ETF) inflows and the rising optimism that the Federal Reserve will cut interest rates in its meeting next week helped BTC price soar.

However, a closer look at its weekly and daily charts provides hints that BTC price may be at risk of a big crash ahead.

Bitcoin Price Weekly Chart Shows a Big Rising Wedge Has Formed

The weekly timeframe chart shows that the Bitcoin price has been on a relentless bull run since bottoming at $15,385 in late 2022. This rally explains why the coin has constantly remained above the short-term and long-term Exponential Moving Averages.

However, a closer look at this chart shows a few red flags that could lead to a big crash in the coming weeks. The most notable risk is that it has formed a rising wedge pattern.

A rising wedge comprises two ascending and converging trendlines. In this case, the lower line links the lowest swing in August 2024, April this year, and the first week of September.

On the other hand, the upper side of this wedge connects the highest swings in March and December last year, and July this year.

These two trendlines are now about to converge, a move that may lead to a strong bearish breakdown. If this happens, BTC’s price may plunge to $74,560, its lowest level in March of this year, which is about 35% below the current level.

Technical indicators also point to a potential crash soon. The Average Directional Index (ADX), which is the most common indicator that measures the strength of a trend, has been in a downward trajectory.

The ADX moved from a high of 60 last year to 22 today. A falling ADX signals that a trend is losing momentum.

Similarly, the Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have all formed a bearish divergence pattern. Both have largely moved downwards despite the ongoing Bitcoin price rally.

Federal Reserve Interest Rate Cut Could Be a “Sell the News Event”

Bitcoin has some bullish catalysts that may drive it to a record high in the coming weeks. For example, spot Bitcoin ETFs are still seeing substantial inflows, which rose by a whopping $1.7 billion this week after rising by $246 million last week. It shows solid demand among Wall Street investors.

The other bullish catalyst is that the upcoming fourth quarter is usually the most bullish one for the crypto market. CoinGlass data shows that the average Bitcoin return in the fourth quarter is about 84%.

Most importantly, the Federal Reserve is expected to start cutting interest rates next week. It may boost the momentum of risky assets.

However, the main risk for Bitcoin is that the Fed cut will be a “sell the news” event since market participants have already priced in it.

The rate cut could be hawkish since the US inflation is much higher than the Federal Reserve’s 2% target. A hawkish cut is a situation where the bank slashes rates and hints that they will remain higher for longer.

JPMorgan analysts have already warned that this may happen in the stock market, a situation that may also apply to the crypto market. In line with this, analysts at RBC Capital Markets have also warned of a potential buying fatigue in the market today.

Summary

Bitcoin price has numerous bullish catalysts, including the Fed rate cuts, accumulation by Treasury companies like Metaplanet and Strategy, falling reserves on exchanges, and the flight to safety as the US dollar crashes.

However, the rising wedge on the weekly chart and the fact that the Fed cut has been priced in already could be a risk. That could lead to a short-term pullback before a rally to the all-time high.