Bitcoin: $6,000 Disaster Scenario - IMF Warning
Monday, October 3, 2022
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Until the start of the coronavirus pandemic, Bitcoin was moving independently of the stock markets. Therefore, it was considered a good addition to a balanced portfolio.
But the situation changed dramatically after central banks started injecting huge amounts of liquidity into the market to mitigate the negative effects of the pandemic. Despite the slowdown in the global economy and the disruption of supply chains, the stock markets and BTC/USD hit new highs. Much of the extra central bank money was invested not only in traditional assets, but also in digital assets. Since then, bitcoin has been correlated with securities.
The runaway Inflation led the Fed to start changing the direction of its monetary policy last fall. The increase in interest rates and the shrinking of the balance sheet resulted in a drying up of liquidity, which is why bitcoin has moved lower, as have the equity markets.
The International Monetary Fund (IMF) has warned of the risk of a severe global recession in 2023. At the same time, more and more central banks are tightening monetary policy as the only way to absorb rising inflation.
If a severe recession were to actually occur, risk aversion in the markets would increase, which would also deprive bitcoin of additional financial resources.
The director of Midas Touch Consulting, Florian Grummes, assumes that BTC will break through the $18,000 support and that a test of the $10,000 mark is to be expected. As a worst case scenario, Grummes mentions a drop to $6,000. But according to Grummes, the next bull market will certainly arrive, most likely around the halving in May 2024.
By then, cryptocurrencies should also have the wind back in their sails on the monetary policy side, because if inflation is fought with higher interest rates, rate cuts and bond purchases are the established cure for a recession.
Important technical benchmarks for bitcoin
Bitcoin is currently losing -0.58% at a price of $18,999, while the weekly loss stands at -6.05%.
The crypto-currency remains below the 78.6% Fibo retracement at $19,251. This is the third consecutive daily closing price below this level, arguing for an extension of losses towards the September 21 low. This is at $18,191 and if the bulls fail to defend it, expect a test of the cycle low of $17,630.
This scenario can only be avoided if the Fibo retracement of 78.6 percent is regained in a sustainable manner. A correction of the losses would then be possible towards the psychological mark of $20,000 and the 61.8 percent Fibo retracement of $20,523.
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