Understanding the Current Decline in Bitcoin Prices Today

December 23, 2024February 6, 2025 EquityExplained

On December 18th, the price of Bitcoin (BTC) dropped by 4.75% after reaching a record high of around $108,365. As of now, it’s trading at approximately $104,175. This decline seems to be anticipated ahead of the United States Federal Reserve’s crucial interest rate decision.

Table of Contents

A Pre-Fed Correction?

Most Bitcoin traders are likely de-risking in anticipation of the Fed’s announcement. The BTC/USD four-hour price chart indicates a slight correction before the critical event. This movement is consistent with market behavior, where investors tend to reduce their exposure ahead of significant events that could impact the global economy.

Sell-the-News Sentiment Takes Hold

Bitcoin’s price surged by up to 13.20% since the consumer price index (CPI) data release on December 11. However, this correction now appears to be a result of ‘sell-the-news’ sentiment in the market. The CPI data showed inflation rising in November, which might have led to investors cashing out their profits.

Unclear Fed Rate Path Ahead

K33 Research analysts Vetle Lunde and David Zimmerman noted that the central bank may pause rate cuts in the coming months. This uncertainty has contributed to Bitcoin’s price drop. In a note, they wrote: "We expect this week’s FOMC to contribute to the market’s volatility." Additionally, they mentioned that the Fed might not continue with rate cuts, which could impact Bitcoin’s momentum.

Quiet Macro Weeks Ahead

Following the Federal Open Market Committee (FOMC) meeting, there will be relatively quiet weeks ahead for macroeconomic news. This period of calm might set the stage for Bitcoin to experience a significant price movement during the holiday season.

Stock-to-Flow Reversion Indicator Signals Cautious Profit-Taking

The Stock-to-Flow (S2F) Reversion indicator is signaling cautious profit-taking as Bitcoin’s price trades near a new record high. Historically, when the S2F reversion ratio rises above 2.5, it has often marked levels where the market shows signs of potential short-term corrections.

Key Levels for Profit-Taking

When the S2F reversion ratio breaches 3, it suggests the market is overheating, often coinciding with local tops and periods of heightened volatility. Conversely, when the ratio drops below 1, it indicates a buy signal. For instance, on September 11th, the metric fell below 1, following a sharp Bitcoin price rebound.

Bitcoin Price Drop: A Prudent Strategy

CryptoQuant analyst DarkFrost advised that taking moderate profits once the S2F reversion ratio hits 2.5 and securing larger profits when the ratio exceeds 3 is a prudent strategy. The current ratio is around 2.5, which may indicate cautious profit-taking in the market.

BTC/USD Daily Price Chart: Bearish Divergence

Bitcoin’s price drop in the last 24 hours has appeared further due to weakening technicals. A growing bearish divergence between BTC’s rising prices and declining relative strength index (RSI) on the daily chart suggests that Bitcoin’s upward momentum is weakening, typically preceding a price correction.

Rising Wedge Trend: Price Target at $92,000

Bitcoin’s drop is part of its prevailing rising wedge trend. The price has tested the upper trendline as resistance and is now facing the lower trendline support. Related to this trend, the 50-day exponential moving average (EMA) is also approaching the price target.

Bitcoin Price Target: A Technical Analysis Perspective

Traditional analysts see rising wedges as bearish reversal indicators, resolving when the price breaks below the lower trendline and drops by as much as the wedge’s maximum height. This puts Bitcoin’s downside target for December at approximately $92,000, coinciding with the 50-day EMA.

Investment Advice

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.