The price of Bitcoin (BTC) is fluctuating around $42,000 on Dec. 5, continuing to show strength after Jerome Powell’s statement on interest rates last week.
Bitcoin, gold price booms on rate cut hopes
BTC’s price kickstarted the new week by climbing above $41,400 for the first time in 17 months. In doing so, the cryptocurrency followed gains in the gold market, its traditional safe-haven rival whose price rose to a new record-high on Dec. 1.
BTC/USD vs. gold daily price performance. Source: TradingView
Rate-cut expectations may have served as the common denominator for Bitcoin and gold’s price rallies this week. Notably, investors have become more confident about a Federal Reserve pivot on interest rates after Jerome Powell’s speech on Dec. 2.
The Fed chairman said they have raised interest rates high enough to fully combat inflation. However, he emphasized that it was too soon to speculate on when the tightening policy might ease, a viewpoint markets clearly ignored.
For instance, as of Dec. 5, CME’s Fed futures fund rate tracker was showing more than 50% possibility of a rate cut by March 2024.
Target rate probabilities for March 20, 2024 Fed meeting. Source: CME
Rate cuts have proven to be bullish for Bitcoin in recent years. They tend to reduce the U.S. Treasury’s investment appeal due to lower yields. At the same time, lower rates increase investors’ appetite for riskier, non-yielding assets like gold, Bitcoin and stocks.
BTC’s price is also gaining momentum amid increasing chances that the first spot Bitcoin exchange-traded fund (ETF) in the U.S. will be approved by January 2024.
15% BTC price pullback in play
Bitcoin’s price rally in recent months has created a broad divergence with its daily relative strength index (RSI), indicating that its buying momentum has been slowing down at local price highs. From a technical perspective, a bearish divergence increases selloff pressure.
BTC/USD daily price chart. Source: TradingView
BTC selloff risks increase further near its 0.5 Fib line near $42,000, a support-turned-resistance level. As a result of the combination of these bearish signals, Bitcoin’s price has a good chance of dropping toward $35,780 by the end of December.
The downside target coincides with Bitcoin’s 0.382 Fib line and its 50-day exponential moving average (50-day EMA; the red wave).
BTC profit-taking rises
On-chain signals also hints at a potential selloff period ahead. For instance, Bitcoin’s Net Unrealized Profit and Loss (NUPL), which represents the difference between market cap and realized cap divided by market cap, is rising.
Bitcoin NUPL. Source: CryptoQuant
A Bitcoin NUPL reading above “0” indicates that investors are in profit. So the more investors are in profit, the higher the chance of the taking profit, resulting in price pullbacks.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
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Author: Yashu Gola