The price of Bitcoin (BTC) is hovering around $42,000 on Dec. 5, maintaining its strength following Jerome Powell’s statement on interest rates last week.
Bitcoin and gold prices surge on rate cut hopes
BTC’s price started the week by surpassing $41,400 for the first time in 17 months. This increase in price mirrors the gains seen in the gold market, a traditional safe-haven asset that reached a new all-time high on Dec. 1.
The hope of a rate cut may be the driving force behind the rallies in both Bitcoin and gold prices this week. Investors have grown more confident in the Federal Reserve’s potential shift in interest rates after Jerome Powell’s speech on Dec. 2.
Although Powell stated that interest rates have been raised sufficiently to combat inflation, he also mentioned that it was premature to speculate on when the tightening policy would ease, a sentiment largely ignored by the markets.
For example, as of Dec. 5, CME’s Fed futures fund rate tracker showed over a 50% chance of a rate cut by March 2024.
Rate cuts have historically had a positive impact on Bitcoin. They diminish the appeal of U.S. Treasury investments due to lower yields while simultaneously increasing investors’ appetite for riskier assets like gold, Bitcoin, and stocks.
BTC’s price is further gaining momentum due to increasing prospects of the first spot Bitcoin exchange-traded fund (ETF) being approved in the U.S. by January 2024.
Potential 15% BTC price pullback
Bitcoin’s recent price rally has created a notable divergence with its daily relative strength index (RSI), indicating a slowdown in buying momentum at local highs. This bearish divergence increases the likelihood of a selloff.
There is an increased risk of a BTC selloff near its 0.5 Fib line at around $42,000, which has now become a resistance level after previously serving as support. Considering these bearish signals, there is a strong possibility that Bitcoin’s price could drop to around $35,780 by the end of December.
This downside target aligns with Bitcoin’s 0.382 Fib line and its 50-day exponential moving average (50-day EMA).
Increase in BTC profit-taking
On-chain signals also indicate the potential for a period of selloff. Bitcoin’s Net Unrealized Profit and Loss (NUPL), which measures the difference between market cap and realized cap divided by market cap, is on the rise.
A positive Bitcoin NUPL reading indicates that investors are in profit. Therefore, as more investors see profits, the likelihood of taking profit increases, leading to price pullbacks.
Hot Take: BTC Holds Strong Amid Rate Cut Hopes
The price of Bitcoin continues to show resilience as it hovers around $42,000. The hope for a rate cut by the Federal Reserve has fueled rallies in both Bitcoin and gold prices. Rate cuts have historically been bullish for Bitcoin and have also increased investors’ appetite for assets like gold and stocks. However, there are indications of a potential pullback in Bitcoin’s price due to a divergence in its buying momentum and on-chain signals suggesting an increase in profit-taking. Despite these risks, Bitcoin remains strong with the possibility of gaining further momentum if the first spot Bitcoin ETF is approved in the U.S.
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