Bitcoin (BTC) started the day in red and is already trading below the 50 day EMA. It is going to be very interesting to see how it turns out, whether we could see another move up before the downtrend begins or if the price is just going to fall straight to mid $8000s from here. However, what’s more interesting than that is the way the price rallied yesterday. We saw the Fed cut interest rate for the first time since the 2008 financial crisis. This was a major even which had a serious impact on major financial markets. Usually the stock market reacts positively to interest rate cuts because when the rates are reduced, borrowing becomes cheaper and there is more money for stock buybacks. There is practically more free money to be pumped into the markets but there is reason the stock market reacted negatively to the rate cut.
The reason the S&P 500, Nasdaq, Dow Jones Industrial Average, Russell 2000 and other indices reacted negatively to the rate cut was because of two words from the Fed chairman. Those two words were: “midcycle adjustment”. These words made it quite clear to people on Wall Street that this was just a temporary fix. Chairman Powell also said that this was not the beginning of a rate reduction regime. So, the market reacted negatively to that because it has now become clear to most investors that the Fed is just looking for ways to save the economy from collapse. The first rate cut in more than a decade is a clear indicator that something is not right. However, what’s quite surprising to see was the reaction of Bitcoin (BTC) to all this. Normally, when the S&P 500 declines, we see BTC/USD follow. This has happened over and over again the past few years.
Similarly, when the EUR/USD pair starts to decline, we see a decline in Bitcoin (BTC) because the US Dollar (USD) goes up and when the US Dollar (USD) gains more strength, we see a fall in the price of Bitcoin (BTC) in dollar terms. The fact that Bitcoin (BTC) is rising when the EUR/USD pair has just broken below a critical descending triangle is nothing more than temporary manipulation. So, why is all this happening? Investors that rode the rally this far has made a lot of money but now the challenge for them is to get out without spooking the horse.
If they liquidate their holdings the market is going to notice and a lot of people will panic before the whales and market makers can dump their coins on them. This is why they have pumped the price when the stock market was falling to convince not the retail traders but institutional traders that Bitcoin (BTC) could be a hedge against the stock market. Retail traders are already suckered in but they need to sell to institutions to quickly get out of the market. If we take a step back and look at the big picture, it is quite obvious that BTC/USD is long overdue for a major correction. This correction is very likely to not just erase all the gains BTC/USD has made since December, 2018 but fall below $3,000 to fall its true bottom towards the end of the ongoing bear market.