On September 6, Bitcoin (BTC) price dropped below $20,000 and the asset looks set for a further decline in September due to the strength of the US Dollar and an ominous technical analysis pattern.
Bitcoin eyes $15,000 next
From a technical perspective, Bitcoin risks dropping to $15,000 or less in the coming weeks after breaking out of the prevailing “bear flag” pattern.
For non-conformists, bear flags form when price consolidates higher within a parallel ascending range after a strong downtrend. It is usually resolved after the price breaks below the lower trend line and drops as far as the length of the previous downtrend.
BTC/USD daily price chart featuring a ‘Bull Flag’ pattern. Source: TradingView
Bitcoin has entered the so-called breakout phase of a bear pennant pattern, with its underlying bearish target south of $15,000, as shown in the above chart.
Criticism is king
The odds of a weaker currency heading to 2022 are increasing mainly due to the deteriorating economic background.
Bitcoin’s 60% drop to date is one of the unfortunate consequences of the Fed’s hard-line policy of bringing inflation down to 2% from its current level of 8.5%. In detail, the US central bank raised its benchmark rates to the 2.25% – 2.5% range through four consecutive increases in 2022.
The increases in appetite for cash-based securities bolstered riskier assets such as bitcoin.
For example, US banks with savings accounts are offering customers an annual return of 2% or more of about 0.5% at the beginning of this year, according to BankRate.com data.
Meanwhile, Goldman Sachs analysis shows that mutual funds with $2.7 trillion in managed capital increased their cash holdings by $208 billion in the first half of 2022, the fastest allocation rate to date.
Mutual fund asset rotation was observed in HY1 / 2022. Source: Goldman Sachs
The broader demand for cash helped the US dollar index, which measures the strength of the US currency against a group of major foreign currencies, to climb to 110.55 on September 6, its highest level since 2002.
DXY daily price chart. Source: TradingView
As a result, cash has significantly outperformed stocks, bitcoin, ethereum, copper, timber, and other assets in 2022.
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This trend may continue, given that the Federal Reserve plans to continue its rate-raising spree, said Jerome Powell at a recent Jackson Hole symposium.