Bitcoin fell for the fourth consecutive day, forming a bearish technical pattern that suggests a drop below $25,000.
Bitcoin’s price fell for three straight days as traders assessed a number of downside factors, including higher transaction fees and legendary investor Warren Buffett’s bearish signal on risk-on markets.
BTC price fell below $27,500 on May 9, down 8% from the local high of $29,850 reached three days earlier. Moreover, the decline was accompanied by an increase in trading volume, suggesting that there was momentum behind the move.
But will this be a short-term downtrend or is there more downside to come? Let’s take a closer look.
H&S pattern hints at BTC price below $25,000
From a technical perspective, Bitcoin price is at risk of falling below $25,000 in the short term.
The downside target is based on Bitcoin’s head and shoulders (H&S) pattern, which is confirmed by a three-peak formation above a common support level. The middle peak is called the “head” and is taller than the other two — the left and right shoulders — which are almost equal in height.
As a rule of technical analysis, if there is a decisive break below the overhead support near $27,500, the price could fall to the maximum height of the pattern, which is the distance between the head and the support level.
This increases the likelihood that Bitcoin could fall to $24,750 by June, a drop of about 10% from current price levels.
Additionally, independent market analyst Cold Blooded Shiller expects Bitcoin prices to drop to $25,000, a previous weekly resistance level, within the next two days.
“I still think if this breaks structure it will move to weekly level very quickly (24-48 hours),” the analyst tweeted, adding:
“[$27.5K] is one of the better potential defense points for BTC, but crypto markets have been trading very weakly. Very different than their usual correlation to indices or metals.”
Conversely, a massive bounce off the head and shoulders support will invalidate the bearish pattern. A recovery towards $30,000 will then be in the cards.
April CPI data released
The price of Bitcoin has fallen in the days leading up to the release of U.S. inflation data on May 10.
Notably, the core consumer price index (CPI), excluding food and energy, was likely close to 5.5% in April, almost unchanged from the previous month, according to Bloomberg.
This sustained CPI reading means the Fed will need to continue raising interest rates to get inflation down to its preferred 2% target.
Higher interest rates tend to reduce investor appetite for riskier zero-yielding assets like Bitcoin, a fundamental that aligns with the H&S price target for BTC/USD above.
Still, Fed Chairman Jerome Powell said last week they will pause rate hikes in June to see how the U.S. economy responds to higher rates and the ongoing banking crisis.
He dismissed the possibility of rate cuts, even though data from federal funds futures suggests the likelihood of at least five rate cuts between May 2023 and January 2024 — a potential buy signal for Bitcoin investors.
Bloomberg Economists:
"Fed Chairman Jerome Powell said at the May FOMC meeting that rates are probably already 'tight enough' - but he needs more time to watch events unfold before he can be confident in his judgment. Neither the April CPI nor PPI data will be reassuring, with both expected to show an acceleration in headline inflation."
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