Bitcoin price starts the week in the red, what drove the drop?

The price of Bitcoin has been moving sideways as October progresses, with the cryptocurrency experiencing some volatility to the downside. On low time frames, sentiment in the market is neutral with rallies to the bullish side, but on higher time frames, BTC has been stuck in the same range for months.

At time of writing, Bitcoin price is trading at $19,150 with a 2% loss in the last 24 hours and sideways movement in the last 7 days. BTC price remains range bound at its current levels and with an occasional retest of resistance at $20,500 due to macroeconomic conditions.

BTC price is trending down on the 1 hour chart. Font: BTCUSDT Trade View

Bitcoin price sees spike in volatility

Bitcoin price was recently rejected from the $20,500 area as the US economy sees higher than expected levels of employment and resistance to Federal Reserve (Fed) monetary policy. The financial institution took over the care of the financial sector.

The current economic narrative gravitates around the same themes, how far is the Fed willing to go to mitigate inflation, dragging the markets with it? And how much pain can US allies take before the financial institution changes?

From this main narrative, there are different subplots with a possible economic downturn taking center stage. In the cryptocurrency sector, there are players who are already expecting the price of Bitcoin to rise as central banks maintain their aggressive approach, increasing the chances of breaking down key components of the global economy.

In that sense, the next meeting of the Federal Open Market Committee (FOMC) of the Fed this Wednesday could provide more information on the institution’s strategy. This event is likely due to increased Bitcoin price volatility.

In the past, the cryptocurrency has seen similar price action leading up to the event and bullish price action in the days after. This time around, the US dollar, as measured by the DXY index, could operate as a short-term headwind against the cryptocurrency.

On daily time frames, DXY was able to post a new monthly high for October as the coin continues its uptrend. At time of writing, the dollar looks poised to revisit the area around 115, which could limit the price upside potential of Bitcoin and three key global currencies: the Japanese Yen, Euro, and British Pound.

Bitcoin BTC BTCUSDT DXY price
The DXY index is trending up on the daily chart. Font: business view

When will the Fed change?

In the short term, Bitcoin price needs to see a pullback in the US dollar to mitigate downward pressure. As long as the dollar remains strong, risk assets and global currencies are likely to trade in the red.

Pressure is already mounting on the Federal Reserve to halt its monetary policy and interest rate hike program. From international organizations to hedge funds, the global market is begging for mercy, but the Fed and its chairman, Jerome Powell, seem adamant.

On Wednesday, if the Fed reiterates its position, the price of Bitcoin could continue to experience downward volatility. In this scenario, traders need to watch the key support levels at $18,600 and $17,600 to prevent a further drop.

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