Bitcoin’s (BTC) price continued its downtrend Wednesday ahead of the testimony from United States Federal Reserve Chairman Jerome Powell.
The spot BTC/USD exchange rate fell to its 17-day low of $31,600 following a 3.46% intraday dip. Meanwhile, CME futures tied to the pair plunged 3.41% to $31,515, extending their week-to-date losses to 9.5%.
Bulls step in at $31.5K to buy the Bitcoin dip. Source: TradingView
Bitcoin had powered to $35,000 at the beginning of July, as bulls continued to defend support levels around $30,000 against each downside attempt.
Independent market analyst Will Clemente III noted that entities with a low history of selling kept absorbing Bitcoin at lower levels from speculative traders, adding that the strategy is in the process of effectively removing a good BTC supply out of the market.
“Given no capitulation event, in my humble opinion, it is a matter of ‘when’ the re-accumulation process will be finished rather than ‘if,’” Clemente wrote.
“Once the process completes, the market would experience a supply shock.”
Bitcoin sold off at $35,000 and dropped to near $31,500 during the Wednesday session. One factor that made traders cautious is uncertainty about how the Federal Reserve would respond to the bout of higher inflation — now running upward at its fastest pace in 13 years.
In detail, the U.S. Consumer Price Index (CPI) rose 0.9% in June 2021 from the previous month and by 5.4% compared to June 2020. The higher inflation readings honed focus on Powell’s appearance before the House Financial Services Committee on Tuesday at 9:30 am EST.
U.S. core inflation data hits its highest levels since the year 1991. Source: Bureau of Labor Statistics
The central bank chief expects to clarify his position on the ongoing spike in consumer-related inflation. In his earlier statements, Powell has suggested that the Fed should move cautiously unless it sees a “maximum recovery” in the U.S. labor markets.
Therefore, with support from some like-minded dovish Fed officials, including New York branch head John Williams, Powell might ignore trimming the Fed’s $120-billion monthly asset purchase program in the wake of strong U.S. growth and high inflation.
The Fed’s hawkish tone coincides with lower BTC prices
Meanwhile, Evercore ISI economist Peter Williams forecasted that rising CPI readings would increase tensions among the Federal Open Market Committee’s members.
He noted that some hawkish members might demand tapering to begin as early as September, albeit adding that the Fed, in general, would follow a wait-and-watch approach, thinking inflation is transitory in nature.
As for Bitcoin, the outlook remains mixed, especially after the cryptocurrency failed to respond to inflation alarms in recent months, China’s crackdown on the crypto sector, increasing regulatory scrutiny, the Fed’s rate hike plans for 2023, and Elon Musk’s anti-crypto tweets.
Fortune reported that Bitcoin is marching “on its own drummer,” ignoring the recent spikes in key inflation metrics. That makes the cryptocurrency a doubtful hedge against rising consumer prices.
However, Joel Kruger, a forex strategist at London-based investment firm LMAX, thinks differently. The analyst noted that Bitcoin’s long-term prospects remain skewed to the upside because there’s a “legit fear of rising inflation.”
“Setbacks more about SOME investors looking at Bitcoin as a risk correlated emerging asset,” he tweeted late Tuesday.
“Short-term could see more downside if stocks plunge. But ultimately, Bitcoin should be well supported on the longer-term value proposition.”
Additionally, Greg Waisman, co-founder and chief operating officer of cryptocurrency infrastructure company Mercuryo, offered a more critical outlook.
First, he noted that macro investors do not believe in Bitcoin’s true value even against rising inflation. And second, he projected Ether (ETH) as a better cryptocurrency, given its recent run-up against Bitcoin.
Ether prices against Bitcoin has surged 136% on a year-to-date basis. Source: TradingView
“Bitcoin is the most expensive and renowned cryptocurrency, but it’s not a cryptocurrency of the present,” Waisman explained, adding:
“Ethereum is the true king of cryptocurrencies. Investors will continue to ride the Bitcoin high and dump at their convenience. That said, Bitcoin will once again surpass the $50k mark.”
Currently, lackluster volumes and a two-month-old downside move continue to keep Bitcoin in a bearish state.
Bitcoin holds above second-quarter support around $30,000. Source: TradingView
Since May 20, the BTC/USD exchange rate has been trending lower inside a falling parallel channel, rebounding off its support trendline and pulling back lower upon testing resistance. At the same time, the $30,000–$32,000 area has been providing a confluence of additional support.
The pair appears to be heading back toward the lower trendline following the latest retest of the Channel’s upper trendline. However, the short target in the current scenario is below $30,000 (toward the Q2 bottom of $28,732).
Conversely, a break north of the Channel’s resistance trendline could have BTC/USD test the 50-day simple moving average (50-day SMA; the blue wave) at $35,363 as the next upside target. The area has witnessed sell-offs in the recent sessions.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.