Bitcoin (BTC) price suffered a fatal crash in the first week of August and is still reeling from it. Last week, BTC crashed by 7%, but it currently trades at a key psychological level. But, the US stock market shows signs of exhaustion, which could impact BTC and broader financial markets.
The US Stock Market Recession Signal v. Bitcoin price
Although BTC is considered an uncorrelated asset, it has a positive correlation with the US stock markets and liquidity cycles. Bitcoin price is also very sensitive to the macroeconomic policies of the West. But if the US stock market slips into recession, what could happen to the BTC price or the crypto markets?
This article will explore two key signs that are flashing after the 2007-’09 Great Recession. The S&P500 Index flashed two signals that hinted at a reversal in the third quarter of 2007 – a swift v-shaped recovery and bearish divergences.
As shown in the image below, just before the US Federal Reserve’s rate cut decision on September 18, the S&P500 Index recovered the losses v-shaped, showcasing faux strength before the financial markets collapsed. Interestingly, the Fed is slated to decide on the interest rates on September 18, similar to 2007. Furthermore, the S&P500 saw a similar v-shaped recovery between August 5 and 30.
The weekly chart also visualizes the formation of multiple bearish divergences on the Relative Strength Index (RSI) and Awesome Oscillator (AO). This technical formation occurs when the price produces higher highs without confirming increasing momentum. Instead, the momentum forms lower highs, leading to the non-conformity.
S&P500 1-week Chart
After these two signals emerged in 2007, the markets suffered a tragic correction as the financial markets in the US slipped into recession. Since these signs are flashing again, investors need to be cautious as it could slip into another recession that could be fatal not just for the US stock market or Bitcoin price but for the entire world.
3 Reasons Why Bitcoin Crash is Likely
Bitcoin price is consolidating below the 2021 ATH for the sixth consecutive month. Generally, consolidation below a key hurdle is bullish. In this case, the Relative Strength Index (RSI) hovers above the 50 mean level after descending from the overbought conditions, signaling a bearish outlook. Furthermore, the Awesome Oscillator (AO) has slipped below the mean level of 0, suggesting a shift in momentum favoring bears. If this outlook continues, the chances of a Bitcoin crash are high.
Additionally, the S&P500 index is showing signs seen last seen in early September 2007, which led to a recession. If history repeats, it could trigger a panic selling frenzy affect impact Bitcoin price.
Lastly, the Nonfarm Payrolls on September 6, coupled with the Fed interest rate decision on September 18, will play a key role in determining the future of the financial markets. The first sign of recession in early August caused the S&P500 to tumble nearly 10% while Bitcoin price crashed 30%. Therefore, investors could expect another fatal correction if the NFP event on September 6 is perceived as a weak economic outlook for the US.
The key targets for Bitcoin price prediction include the
weekly support levels at $43,793 and $41,349.
monthly support levels at $30,486 and $27,223.
BTC/USDT 1-week chart
On the other hand, if the NFP data shows a strong jobs market and the Fet cuts interest rates on September 18, it could cause a spike in the bullish sentiment, allowing Bitcoin price to shoot higher. Such a development could see BTC revisit the $70,000 psychological level. Depending on the market conditions, BTC could overcome the current ATH and set up a new one above $80,000.
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