Bitcoin bear flag: collapse approaches $15K as USD hits 20-year high
September 7, 2022 4:23 AM
During the first half of 2022, mutual funds increased their cash holdings by $208 billion, signaling that they no longer view the dollar as a safe haven and instead favor holding onto dollars.
The price of Bitcoin (BTC) dropped below $20,000 on September 6 and is widely expected to fall even more this month due to the strength of the US dollar and a bearish technical analysis signal.
Bitcoin targets $15,000
After breaking out of its dominating "bear flag" pattern, Bitcoin might see a price drop to $15,000 or lower in the next weeks from a technical perspective.
Bear flags, for the uninitiated, are formed when the price recovers after a steep decline and finds stability within a parallel, rising range. As soon as the price drops below the lower trendline and drops as far as the preceding downturn did, they tend to cease.
'Bull flag' pattern shown on daily chart of BTC/USD exchange rate. From TradingView.com
If the preceding chart is any indication, Bitcoin is currently in the breakdown phase of its bear flag pattern, with a potential downside target somewhere below $15,000.
Cash reigns supreme
A deteriorating economic background is a major factor in Bitcoin's potential decline in the second half of 2022.
The Federal Reserve's aggressive goal to reduce inflation to 2% from its current level of 8.5% has had unintended consequences, including a 60% drop in the price of bitcoin since the beginning of the year. The Federal Reserve Board of Governors hiked interest rates four times in 2022, bringing the target range to 2.25 percent to 2.5 percent.
As a result of the increases, cash-based instruments are more sought after than risky ones, such as Bitcoin.
According to data compiled by BankRate.com, the average yearly percentage yield on a savings account at a U.S. bank has increased to 2% or more from 0.5% at the beginning of the year.
Meanwhile, research by Goldman Sachs indicates that mutual funds with a total of $2.7 trillion in equities under management had boosted their cash holdings by $208 billion in the first half of 2022, the quickest allocation pace ever.
Asset rotation for mutual funds is indicated in HY1/2022. Source: Goldman Sachs
The U.S. dollar index, which tracks the greenback's value in relation to a basket of other major currencies, hit a record high of 110.55 on September 6. This was the highest level the index had seen since September 6, 2002.
The daily chart for the DXY. From TradingView.com.
Therefore, in 2022, money has performed significantly better than equities, Bitcoin, Ethereum, copper, lumber, and other assets.
Given that Federal Reserve Chair Jerome Powell said at the recent Jackson Hole symposium that the central bank intends to continue its rate-hiking spree, this pattern may persist.