Elon Musk, Cathie Wood Sound ‘Deflation Alarm’ – Is Bitcoin at Risk of Falling Below $14K?
Bitcoin (BTC) has retreated 20% to nearly $22,500 since September 7. But bull trap risks abound in the long run as Elon Musk and Cathie Wood sound the alarm over a potential deflationary crisis.
Cathie Wood: “Deflation in the Pipeline”
The Tesla CEO tweeted at the weekend that a major interest rate hike by the Federal Reserve could increase the possibility of deflation. In other words, Musk suggests that the demand for goods and services will fall in the United States against rising unemployment.
A major interest rate increase by the Fed risks deflation
— Elon Musk (@elonmusk) 9 September 2022
Interest rate hikes have typically been bad for Bitcoin this year. In context, the period when the Fed raised its benchmark interest rates from near zero in March 2022 to 2.25%-2.50% in August 2022 has coincided with the BTC price falling over 50%.
So far, the labor sector has been very robust. Nevertheless, the latest report from the Bureau of Labor Statistics shows that the unemployment rate has risen to 3.7% from 3.5% in August. Even Alphabet (Google) warned that it could soon turn to layoffs to stay 20% more efficient.
But Fed Chairman Jerome Powell has argued that the central bank could raise interest rates further to bring inflation down to its preferred target of 2%.
As of July, the US consumer price index (CPI) was 8.5% year over year. Inflation data for August is scheduled to be released on September 13, with a Reuters poll of economists predicting it will fall to 8.1%, citing a recent drop in energy prices.
That remains a long way from the Fed’s inflation target of 2%, which David Blanchflower, a former member of the Bank of England’s interest rate committee, said would lead to a hard landing. Thus, a hawkish Fed could usher in rising unemployment and an economic recession, similar to what Musk predicts about deflation.
Similarly, Ark Invest CEO Cathie Wood, who sees Bitcoin hitting $1 million by 2030, cited the latest Manheim data, noting that used car prices fell 4% in August and about 50% in 2022. The calculation again indicates declining consumer. demand.
Deflation in the pipeline, heading towards PPI, CPI, PCE deflator: from post-COVID price peaks, lumber -60%, copper -35%, oil -35%, iron ore -60%, DRAM -46%, corn – 17 %, Baltic freight rates -79%, gold -17% and silver -39%. https://t.co/nVpU1cdf1L
— Cathie Wood (@CathieDWood) 12 September 2022
Bitcoin could feel the pain of a deflation-led recession, with Ecoinometrics’ analyst N suggesting cash-strapped companies wouldn’t dip their toes into a volatile asset until the economy bottoms out.
He explained:
“From 2020 to 2021, there is a large number of new entrants in digital assets, which basically doubled the total amount in Treasuries. And as the market slowed down, everything stopped.”
Retail investors can follow a similar strategy, notes Q.Ai, a Forbes-backed investment service.
In other words, higher loan rates will increase the flow of people’s monthly income towards debt repayment (mortgage, credit cards, etc.), and reduce their cash allocation for riskier assets like Bitcoin.
Bitcoin at $14K?
Macro fundamentals can also trigger Bitcoin’s bearish technical characteristics, especially on the daily chart.
Bitcoin appears to have formed an inverted cup-and-handle bearish reversal pattern, confirmed by an inverted U-shaped price trend (cup) followed by a brief uptrend (handle), all at the top of a common support level called the “neckline.”
Related: Bitcoin is a ‘wild card’ set to outperform – Bloomberg analyst
As a rule of technical analysis, a reverse cup and handle pattern’s profit target is measured after subtracting the neck level price with the maximum cup height, as shown below.
Therefore, from a technical perspective, BTC’s price risks new multi-year lows below $14,000 in 2022, down about 37.5% from today’s price.
Also, Filbfilb, the creator of the DecenTrader trading suite that accurately predicted Bitcoin’s bottom in 2018, told Cointelegraph that BTC could fall as low as $11,000 later this year, based on the historical volume around this level.
“As it stands, the price of Bitcoin is highly correlated with the ‘legacy’ markets, especially the NASDAQ, which we know is under a lot of pressure due to the Federal Reserve’s monetary policy,” he explained. “So this time ‘it’s a little different’ because of the high correlation and external economic forces.”
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
