Bitcoin (BTC) price fluctuated around $42,000 on December 5 and has continued to show strength since Jerome Powell’s interest rate remarks last week.
Bitcoin and gold prices soar on expectations of interest rate cut
BTC price started the new week above $41,400 for the first time in 17 months. This gave the cryptocurrency a boost in the gold market, its traditional safe haven rival, where prices rose to record highs on December 1.
Expectations of an interest rate cut may have been the common denominator in the rise in Bitcoin and gold prices this week. In particular, investors became more confident about the Federal Reserve’s interest rate shift following Jerome Powell’s speech on December 2nd.
The Federal Reserve chairman said he had raised interest rates enough to fully curb inflation. But he stressed that it was too early to guess when austerity measures would ease, a view the market clearly ignored.
For example, as of December 5, CME’s Fed Futures Fund Rate Tracker showed a greater than 50% chance of a rate cut by March 2024.
Interest rate cuts in recent years have proven to be positive for Bitcoin. They tend to reduce the investment attractiveness of U.S. Treasurys due to their low yields. At the same time, lower interest rates increase investors’ preference for risky, non-returning assets such as gold, Bitcoin, and stocks.
BTC prices are also gaining momentum as the possibility of the first U.S. Bitcoin exchange-traded fund (ETF) being approved by January 2024 increases.
15% BTC price decline underway
Due to the rise in Bitcoin price in recent months, the daily Relative Strength Index (RSI) has diverged significantly, suggesting that Bitcoin’s buying momentum is slowing at local highs. From a technical perspective, a bearish divergence increases selling pressure.
The risk of selling BTC increases further near the 0.5 Fib line near $42,000, which transitions from support to resistance. The combination of these bearish signals will likely push the Bitcoin price down to $35,780 by the end of December.
The downside target is consistent with Bitcoin’s 0.382 Fib line and 50-day exponential moving average (50-day EMA, red wave).
BTC Profit Taking Increases
On-chain signals also hint at a potential selling period ahead. For example, Bitcoin’s net unrealized profit/loss (NUPL), which is the difference between market capitalization and realized capitalization divided by market capitalization, is rising.
A Bitcoin NUPL reading above “0” indicates that investors are taking profits. Therefore, the more investors who make a profit, the more likely they are to make a profit, which will cause the price to fall.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.