Bitcoin drops to $76,877 after Warsh's hawkish speech at Jackson Hole
Bitcoin experienced a significant drop on Friday, reaching a low of $76,877 after Federal Reserve President Kevin Warsh's speech at the Jackson Hole symposium. The speech confirmed the resistance that had been signaled earlier in the week, causing a decline that erased much of the double-digit gains from the previous week.
The drop occurred after an overnight peak of $81,455, within a resistance zone that had already limited several previous breakout attempts this year. This resistance zone held once again, despite attempts to overcome it.
Warsh, in his first speech at Jackson Hole, stated that inflation is not cooling fast enough. He set a new standard for the Fed, saying the institution must see inflation moving toward its target clearly and quickly enough before declaring the job done. Otherwise, he said, the central bank still has "work to do".
Traders interpreted these words as a hawkish signal, raising the likelihood of a rate hike in September to 55.7% from 35.4% the previous day, according to the CME Group's FedWatch tool.
Market Impact and Liquidations
The reaction to Warsh's speech reverberated through leveraged positions. According to CoinGlass data, approximately $481 million was liquidated in 24 hours in the cryptocurrency market, with more than $360 million coming from long positions caught off guard by the drop. Bitcoin closed the day at $77,557, down 3.39%.
A pullback or a reversal?
Technically, the decline seems more like a digestion than a reversal. The Relative Strength Index (RSI) stands at 69.7, far from the overbought reading above 80 that had preceded Tuesday's rejection. The Average Directional Index near 39.5 still indicates a strong trend rather than a broken path. The price remains within the uptrend that goes from the June low around $68,858 to this week's peak near $81,455.
The range between $73,670 and $75,157 represents the golden zone that traders will watch first if the selloff extends. A close below this range would question both the 50-week moving average and the June breakout structure. Above the market, the range between $81,000 and $82,500 remains the level that the bulls must retake to reach new highs.
The long-term outlook: what traders are betting on Myriad
The long-term vision remains bullish. The "BTC next move" market on Myriad has been ongoing since late February, with $231,000 in volume traded and no fixed resolution date. The two possible outcomes, a rally to $84,000 or a crash to $55,000, have repeatedly alternated in the lead since the spring. This back-and-forth ended this month, with the $84,000 outcome rising 31.7 percentage points to 77%, against 23% for the $55,000 scenario. Friday's rejection at resistance did not change this division.
The last time predictors were this bullish was in April. The fundamental case for higher prices has not changed. U.S. spot Bitcoin ETFs have raised $2.8 billion in eight consecutive days of inflows up to Wednesday, the longest series of inflows since April.
This demand is linked to an announcement by the Treasury Department that it would at least double its long-term bond repurchases starting September 9, supporting a part of the bond market that has seen weak demand since June. Lower long-term interest rates and a weaker dollar have reignited the "devaluation trade" that fueled Bitcoin's rise from around $62,000 to $80,000 this month.
Beware of the bears
In the short term, the situation still favors caution. Warsh's insistence on abandoning forward guidance means traders do not receive a clear signal until the next Fed rate decision, leaving Bitcoin exposed to news-driven swings on every inflation print until then.
The Personal Consumption Expenditures (PCE) price index is currently at an annual 3.7%, nearly double the Fed's 2% target, and Warsh did not provide a timeline for when this change might occur. Resistance has repelled several attempts in previous months, and Warsh did not give the bulls any reason to expect the Fed will make the next rally test easier.
The impact on the cryptocurrency market
Bitcoin's decline had a ripple effect across the entire cryptocurrency market, with a domino effect that also hit altcoins. According to CoinGlass data, liquidations exceeded $481 million in a single day, with Ethereum and other major cryptocurrencies recording significant losses. This phenomenon was amplified by the use of financial leverage, which exacerbated losses for retail investors.
Technical analysis: signs of weakness?
Technical analysts are closely monitoring the support level between $73,670 and $75,157. A close below this range could signal a trend reversal, putting at risk the uptrend structure that has consolidated since June. On the other hand, a rebound from this level could indicate that the market is simply digesting recent gains before a new rally attempt.
The role of spot Bitcoin ETFs
Record inflows into U.S. spot Bitcoin ETFs represent a positive signal for the market. According to Sosovale data, ETFs have raised $2.8 billion in eight consecutive days, a trend not seen since April. This institutional interest could provide medium-term fundamental support, despite short-term volatility.
The global economy and Bitcoin
The Treasury Department's decision to double long-term bond repurchases starting September 9 could have significant implications for Bitcoin. A more stable bond market and lower interest rates could support the "devaluation trade," which has contributed to Bitcoin's recent rise. Additionally, a weaker dollar could make cryptocurrencies more attractive to international investors.
What to expect from the Fed
In the short term, investors might consider hedging strategies or using options to protect against further swings. For example, buying put options could offer protection against a further drop in Bitcoin's price. At the same time, more aggressive traders might seek to exploit volatility through arbitrage or short-term trading strategies.
Conclusions
Despite the recent drop, the Bitcoin market remains long-term bullish. However, short-term volatility could continue, especially ahead of the Fed's next decisions and inflation data. Investors should maintain a balanced view, considering both fundamental and technical factors, and adopt appropriate risk management strategies.
For further insights, visit Decrypt or consult the CME FedWatch Tool.
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