Bitcoin (BTC) pulled back and reversed its gains for the day after the Federal Reserve announced its third consecutive interest rate hike of 75 basis points (bps) on September 21.
Traders sold the news
BTC price fell around 6.5% from its daily high of $19,950, hitting $18,660 minutes after the Federal Open Market Committee statement. Its drop mirrored a similar sudden correction in the US stock market, with the benchmark S&P 500 index falling 0.5% minutes after the Fed’s update.
Elsewhere, the 10-year US Treasury bond yield rose to 3.6% following the Fed’s announcement, from 3.56% five minutes earlier. Similarly, the 2-year Treasury bond yield rose from 3.98% to 4% in the same time period.
The US dollar index (DXY), which measures the greenback’s strength against a basket of major currencies, rose to 111.57 for the first time in 20 years.
The Fed also released an updated “dot plot,” showing its officials’ individual interest rate forecasts for the end of 2025. These forecasts point to further rate hikes in the future, with a target of 4.4% for 2022 and 4.6% for 2023.
Central bank officials also predicted that the official interest rate would peak at 4.6% in 2023. It would then drop to 3.9% in 2024, followed by another drop to 2.9% in 2025.
All Metrics Point to More Pain for Bitcoin
The rise in the dollar and the fall in Bitcoin following the Fed update reflected investors’ growing appetite for cash and cash-based instruments compared to riskier assets. Meanwhile, the central bank chart hinted that investor sentiment would remain unchanged until the end of 2023.
The price of Bitcoin could continue to suffer due to the Fed’s tightening stance and its attempts to reduce inflation from its current level of 8.3%. After the central bank update, many analysts pointed out that the price of BTC could break below its current technical support range of $18,000 to $20,000, given that the Fed could raise rates another 75 basis points before the end of the year.
I really don’t know how much longer this $BTC support can hold pic.twitter.com/YAdkkB9Zww
— CRG (@MacroCRG) September 20, 2022
The technical outlook for Bitcoin looks similarly bearish. In particular, the cryptocurrency has been forming a bearish reversal pattern called “head and shoulders” with the profit target hovering around $14,000 as illustrated below.
Conversely, a bounce off the $18,800 head and shoulders support level could see Bitcoin targeting $22,500 as an interim upside target.
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