US Stock Market Flashes Recession Signs, Will Bitcoin Price Crash?

by

As a researcher with a decade of experience in analyzing financial markets and cryptocurrencies, I have witnessed my fair share of market cycles – from the 2007-’09 Great Recession to the recent crypto bull runs. The current state of Bitcoin (BTC) price is reminiscent of the pre-recession signs we saw in 2007, and this has left me feeling uneasy, to say the least.

In the opening days of August, Bitcoin (BTC) experienced a catastrophic plunge, and it continues to feel the repercussions. Over the past week, BTC dropped by 7%, and at present, it’s trading at a significant psychological benchmark. However, indications suggest that the US stock market may be nearing exhaustion, which could potentially spill over into Bitcoin and other financial markets.

The US Stock Market Recession Signal v. Bitcoin price

As an analyst, I’ve observed that while Bitcoin (BTC) is often perceived as an uncorrelated asset, it exhibits a positive correlation with the U.S. stock markets and liquidity cycles. Moreover, the price of BTC is highly responsive to macroeconomic policies in the West. In contemplating this relationship, I can’t help but wonder: if the U.S. stock market were to plunge into a recession, what potential effects might this have on the Bitcoin price and the broader crypto markets?

This article delves into two significant indicators that emerged following the 2007-’09 Great Recession. Specifically, it discusses how the S&P500 Index displayed two warning signs predicting a shift in the third quarter of 2007 – first, a rapid V-shaped rebound, and second, bearish divergences.

Before the U.S Federal Reserve made its rate cut decision on September 18th, the S&P500 Index experienced a V-shaped recovery, which seemed strong but was actually misleading before the financial markets took a downturn. It’s interesting to note that, like in 2007, the Fed is scheduled to decide on interest rates on the same date this year. Additionally, the S&P500 exhibited a similar V-shaped recovery from August 5th to 30th.

The weekly graph shows the creation of several bearish divergences on the Relative Strength Index (RSI) and Awesome Oscillator (AO). This technical pattern arises when the price rises to higher peaks but fails to align with growing momentum. Instead, the momentum forms smaller peaks, causing a disagreement or inconsistency in the trends.

US Stock Market Flashes Recession Signs, Will Bitcoin Price Crash?

As a researcher observing current trends, I’ve noticed the reemergence of certain signals that were present in 2007. Back then, these signs preceded a significant market correction when the U.S. financial markets dipped into recession. Given this repetition, it’s crucial for investors to exercise caution, as history suggests a potential repeat could have far-reaching consequences beyond just the U.S. stock market or Bitcoin prices – it might affect global economies as well.

3 Reasons Why Bitcoin Crash is Likely

  1. 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.
  2. 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.
  3. 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

  1. weekly support levels at $43,793 and $41,349.
  2. monthly support levels at $30,486 and $27,223.

US Stock Market Flashes Recession Signs, Will Bitcoin Price Crash?

If Non-Farm Payrolls (NFP) data indicates a robust jobs market and the Federal Reserve reduces interest rates on September 18, this might boost optimism (bullish sentiment), potentially pushing Bitcoin’s price upward. Under such circumstances, Bitcoin could revisit the significant $70,000 level. In favorable market conditions, Bitcoin might surpass its current All-Time High (ATH) and establish a new one above $80,000.

Read More

2024-09-02 14:42