Crypto analyst Benjamin Cowen is updating his outlook on Bitcoin (BTC) as investors begin to anticipate the possibility that the Federal Reserve will reverse its tight monetary policies in the coming months.
In a new strategy session, Cowen tells his 789,000 YouTube subscribers that when the Fed starts cutting rates, which CME’s FedWatch Tool indicates is likely to happen as early as March, risk assets like Bitcoin may actually decline in value.
“As rate cuts arrive it’s typically not the most bullish thing for risk assets, not because rate cuts in and of themselves are not bullish, but because a rate cut in and of itself is theoretically bullish.
But the problem is not the rate cut itself. It’s why the rate cut is happening. And in this cycle, even more so given where inflation is, you’d have to imagine that if a rate cut were to arrive with inflation as high as it is, there’s probably a reason that that’s happening. Last cycle, we did get sort of a [Bitcoin] mid-cycle top [in September 2019] right around the time that rate cuts arrived…
If you look at things like the S&P 500 or risk assets in general, sometimes they top out well before rate cuts arrive. Sometimes they top out a little bit after they arrive, but in most cases, rate cuts arriving have not been a great thing for risk assets, at least over the short term. When it becomes a good thing for risk assets is once you get to the last rate cut… Because once you get to the last rate cut, it basically implies the market thinks the Fed has done enough and that they have gone back to sufficiently looser monetary policy to get the economy back on track.”
Cowen also warns that Bitcoin may dip to test levels within the bull market support band, which is formed by the 20-week simple moving average (SMA) and the 21-week exponential moving average (EMA).
Says Cowen,
“I think it’s worthwhile to keep an eye on the eight-week moving average this week. Again, it’s currently around $42,300, which is right around the current price. If we get below it, there’s a good chance we’re going to test the bull market support band, which is all the way down at $35,000 to $37,000. Just think about $36,000 or so is where it is, which, by the way, from the current price would represent a drop of approximately 13% to get back to the 21-week EMA and about a 16%-17% drop to get back to the 20-week SMA…
This is a pattern that we’ve seen a lot.”
Bitcoin is trading for $42,704 at time of writing.
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