Cryptocurrencies traded in a holding pattern on Wednesday after the latest Consumer Price Index (CPI) report showed an uptick in inflation in August, with headline prices rising 0.6% month-over-month and 3.7% on an annual basis, largely driven by a spike in energy prices.
Stocks were mixed as investors focused their attention on next week’s Fed meeting, where the central bank will determine if additional interest rate hikes are needed. The CME FedWatch Tool now gives a 97% probability that the Fed will pause its rate hikes next week, up from 92% a day ago.
At the closing bell, the S&P and Nasdaq finished in the green, up 0.12% and 0.29%, respectively, while the Dow recorded a loss of 0.20%.
Data provided by TradingView shows that Bitcoin’s (BTC) price initially climbed higher after the CPI report, hitting a high of $26,416 in the afternoon before pulling back to support above $26,100, which has provided a consistent level of resistance since the middle of August.
BTC/USD Chart by TradingView
“September Bitcoin futures prices [were] higher again in early U.S. trading Wednesday, on a rebound after hitting a six-month low Monday,” according to Kitco senior technical analyst Jim Wyckoff.
Bitcoin futures 1-day chart. Source: Kitco
“The bulls have stabilized prices now, but have much more heavy lifting to do in the near term, to suggest a price uptrend can be started,” Wyckoff said. “The bears still have the overall near-term technical advantage as a price downtrend line remains in place on the daily chart.”
Wednesday’s CPI-inspired Trade Letter from MN Trading noted that “When interest rates are aggressively increased, the overall performance of risk-on assets in the markets tends to be less favorable.”
“We witnessed this trend for an extended period, where we seemed to be stuck in a downward spiral,” MN Trading analyst Daan Foppen said, but “The tide is turning.”
With recent CPI reports showing that inflation has been moderating, Foppen said this has given the Fed “fewer reasons to continue aggressively raising interest rates,” which gives risk-on assets “more room to increase in value once again.”
Delving into the price action for Bitcoin, Foppen said that on high time-frame charts, the weekly candles “appear quite indecisive, and the overall chart looks a bit shaky.”
BTC/USD 1-week chart. Source: MN Trading
“Yes, officially, we are still in an uptrend, and that’s certainly something to consider, but I don’t find the overall structure of the weekly timeframe very reassuring,” Foppen said. “We had a sweep to the upside followed by an aggressive move downward. Subsequently, we saw a retracement towards the weekly FVG [fair value gap], where we once again witnessed a strong rejection. Additionally, we have relative equal lows on the downside, and it’s highly likely that the price will move in that direction.”
Scaling down to the daily timeframe, Foppen said, “We can see another reason why an initial move downward is likely in the cards.”
BTC/USD 1-day chart. Source: MN Trading
“We have equal lows on the downside of the price. These levels are used to engineer liquidity,” he said. “What we can see, and it’s highly likely to be the case, is that these equal lows have formed above an imbalance on the daily timeframe. So, now the price has two reasons to go down: first, to remove liquidity below the equal lows, and second, to fill the imbalance on the daily timeframe.”
“Capital preservation is one of the most important aspects of trading,” Foppen said. “Especially in these times and current market conditions, it’s crucial not to do anything reckless. Price action is choppy, and we are trading within a narrow range.”
For this reason, he recommends adopting a strategy called “milk the range,” which involves “trading the extremes of the range until it no longer works.”
BTC/USD 4-hour chart. Source: MN Trading
“This provides stability and prevents you from constantly staring at the charts all day,” he said. “Set alerts at the range high and range low, wait for deviation and reclaim, and trade based on that. This is likely where you’ll find the most success.”
While Foppen is offering traders a potential way to book profits amid sideways trading, Adam Button, chief currency analyst and managing editor at Forexlive.com, warned that “A death cross has formed on the Bitcoin daily chart as the 50-day moving average falls below the 200-day moving average,” and said the last time this happened, “Bitcoin fell from $42,400 down to $15,700 from January to November of 2022 – a 63% decline.”
BTC 1-day chart with 50dma and 100dma. Source: Forexlive
“It’s a popular technical indicator but it’s not infallible,” Button said. “The previous death cross was in June 2021 and it was only followed by a 20% decline and a death cross in 2020 wasn’t followed by any selling at all. This week, a test of $25,000 found buyers but a break could lead to a fall to $20,000 or the January lows near $17,000.”
Mixed performance for the altcoin market
The top 200 altcoins traded mixed, with the winners outnumbering the losers, while most tokens traded within ±3% of Tuesday’s prices.
Daily cryptocurrency market performance. Source: Coin360
VeThor Token (VTHO) was the standout token of the day with an increase of 57% after it was unexpectedly added to Coinbase. Other notable gainers include Storj (STORJ), Galxe (GAL), and Metal DAO (MTL), which increased 10.9%, 9.1%, and 8.3%, respectively. Astar (ASTR) was the biggest loser with a decline of 7.6%, followed by a loss of 5.5% for Akash Network (AKT) and Ribbon Finance (RBN).
The overall cryptocurrency market cap now stands at $1.04 trillion, and Bitcoin’s dominance rate is 49.1%.