Elon Musk and Cathie Wood sound the “deflation” alarm: Is Bitcoin in danger of falling below $ 14,000?

Bitcoin (BTC) has rebounded 20% to nearly $ 22,500 since September 7. But Bull trap risks abound in the long term as Elon Musk and Cathie Wood sound alarms for a potential deflation crisis.

Cathie Wood: “Deflation Coming”

Tesla’s CEO tweeted over the weekend that a major hike in Federal Reserve interest rates could increase the possibility of deflation. In other words, Musk suggests that demand for goods and services will decline in the United States in the face of rising unemployment.

Typically, rate hikes have been negative for Bitcoin this year. In context, the period in which the Fed raised its benchmark rates from near zero in March 2022 to 2.25% –2.50% in August 2022 coincided with the price of BTC falling by more than 50%.

At this point, the job sector has been very resilient. However, the latest report from the Bureau of Labor Statistics shows that the unemployment rate rose to 3.7% from 3.5% in August. Alphabet (Google) also warned that they could soon move on to layoffs to stay 20% more efficient.

But Fed Chairman Jerome Powell said the central bank could raise rates further to bring inflation to their preferred 2% target.

In July, the US consumer price index (CPI) was 8.5% yoy. Inflation data for August is expected to be released on September 13, with a Reuters poll of economists forecasting it will fall to 8.1%, citing a recent drop in energy prices.

This is still far from the Fed’s 2% inflation target, which David Blanchflower, a former member of the Bank of England’s rate-setting committee, will drive. to a hard landing. Therefore, an aggressive Fed could usher in a rise in unemployment and an economic recession, similar to what Musk predicts about deflation.

Along the same lines, Ark Invest CEO Cathie Wood, who sees Bitcoin hit $ 1 million by 2030, citing the latest data from Manheim, noting that used car prices fell 4% in August and about 50% in 2022. The metric once again indicates the decline in consumer demand.

Bitcoin could suffer the pain of a deflation-driven recession, with Ecoinometrics analyst N suggesting that companies with liquidity will not dip their toes into a volatile asset until the economy has bottomed out.

He explained:

“From 2020 to 2021, there is a large number of new entrants to the digital assets space, which has practically doubled the total receipts in government bonds. And with the market slowdown, everything has stopped.”

Bitcoin treasure holdings since 2020. Source: Ecoinometrics

Retail investors could follow a similar strategy, notes Q.Ai, an investment service backed by Forbes.

In other words, higher lending rates would increase people’s monthly income flow towards debt repayment (mortgages, credit cards, etc.), decreasing their money allocation to riskier assets like Bitcoin.

Bitcoin at $ 14K?

Macro fundamentals can also trigger Bitcoin’s bearish technical play, particularly on the daily chart.

Bitcoin appears to have formed an inverse-cup-and-hand bearish reversal pattern, confirmed by an inverted U-shaped (cup) price trend followed by a short uptrend (handle), all on top of a support level. common called “neckline”. ”

Related: Bitcoin is a “wild card” set to outperform – Bloomberg analyst

As a rule of technical analysis, the profit target of an inverse cup-and-handle model is measured after subtracting the price of the neckline level by the maximum cup height, as shown below.

BTC / USD daily price chart with reverse cup and handle configuration. Source: TradingView

Therefore, from a technical point of view, the price of BTC risks new multi-year lows below $ 14,000 in 2022, down about 37.5% from the September price.

Additionally, Filbfilb, creator of the DecenTrader trading suite that accurately predicted Bitcoin’s low in 2018, told Cointelegraph that BTC can drop as low as $ 11,000 by the end of the year, based on historical volume around this level. .

“As it stands, the price of Bitcoin is strongly correlated with” legacy “markets, particularly NASDAQ, which we know is under enormous pressure due to the Federal Reserve’s monetary policy,” he explained. “So this time” it’s a bit different “because of the high correlation and external economic forces.”

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