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19.08.2022 10:37 AM
BTC to hardly rise in autumn
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On Friday, bitcoin opened a trading day with the largest slump in the last three weeks. The asset rapidly reached the support level of $21.4K, but then started recovering. However, there are no reasons to say that BTC will soon return to $23K-$24K. The impulsive downward breakout unveiled all the main problems of the asset. They could be explained by low trading volumes and the absence of fundamental reasons for a rise. These and some other factors may prevent BTC from a new uptrend.

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Let us start with the main and most negative factor. The Fed published its meeting minutes, which usually help traders to predict future actions of the regulator. The publication of the document caused an extremely negative effect on the market, which led to a decline. The fact is that according to the document, the regulator supposes that the US economy may face risks if it continues the interest rate hike. That is why in September, the Fed may raise the benchmark rate by just 25 basis points instead of 50 basis points. However, the document also reads that the current monetary policy will remain unchanged until inflation declines on a yearly basis.

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Earlier, members of the Fed were sure that they would be able to switch to a looser approach in the autumn. However, now they prefer remaining cautious, thus negatively affecting the crypto market. What is more, judging by the current inflation level, the key interest rate will be hiked at least two more times. Initially the Fed said that inflation should be at the targeted level of 2%. In July, the CPI was at the level of 8.5% The ECB is likely to take the same approach. The regulator said that the key interest rate hike that took place in July failed to change the situation.

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These fundamental factors are signaling that the market situation will remain the same. Now, let us figure out other factors. Thus, monetary policy tightening has a negative effect on liquidity. It means that mining companies continue suffering problems with debt obligations and covering current expenses. This may have a double negative effect on BTC. The first will be related to sales of BTC coins in order to obtain quick liquidity. In July, mining companies got rid of 6,200 coins, and the total sales of bitcoin for the last three months (May-July) totaled a whopping 240,000. What is more, the situation will hardly change.

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The second problem comes from the selling of mining equipment and problems with BTC hashrate. In this case, the asset will become less attractive for investors. We have already mentioned Stronghold Digital Mining, which announced the selling of a large number of equipment for BTC mining. The key aim was to cover financial debt of $79 million and interest payments worth $113 million. This trend is just gaining momentum and may soon turn into a real problem for BTC. Miners' reserves are being depleted, and a reduction in computing power amid the sale of valuable equipment could become the next step.

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If the Fed remains stuck to the current policy, the US dollar index will continue climbing. The index finished its monthly correction and resumed increasing. On August 19, the instrument reached 107 points and continued the upward movement. On the daily chart, technical indicators are reflecting an uptrend. The RSI and MACD indicators are showing a clear upward movement, which points to a long-term interest in the asset. The stochastic oscillator has reached the overbought zone and now is declining. This indicates an increased interest in the index. Given the inverse correlation of BTC and DXY, the cryptocurrency may see a gloomy future.

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All these fundamental factors are pointing to the fact that BTC is unable to resume a strong upward trend. In July and August, the rise was caused by a downward correction in the US dollar index and positive fundamental news. However, there are no significant changes among BTC investors. Against the backdrop, the asset is likely to retest $20K.

Artem Petrenko,
Analytical expert of InstaForex
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