Bitcoin price has remained nervous this week as investors await the Bank of Japan’s interest rate decision scheduled for December 19.
Summary
- Bitcoin price has retreated this week as traders await the BoJ interest rate decision.
- The odds of a rate cut in the polymarkets have increased to 99%.
- Bitcoin has formed a bearish flag pattern on the daily chart.
Bitcoin (btc) token was trading at $87,700 at the time of this publication. This price was approximately 7.47% below this month’s high point and 30% below the all-time high.
BoJ likely to raise interest rates
Bitcoin, altcoins and the stock market have retreated in recent days as the odds of a BoJ rate hike have increased. Polymarket assigns a 98% probability to an increase.
A BoJ rate hike is important given its size, as it is one of the largest central banks in the world, with more than $4.48 trillion in assets. It is also the largest holder of US government bonds.
The risk of a BoJ hike at a time when the Federal Reserve is cutting rates is that it could now push investors to unwind their carry trades. A carry trade occurs when an investor borrows from a country with low interest rates and invests in higher-yielding assets.
Japan has been one of the biggest catalysts for the carry trade, keeping interest rates low for decades. As such, as the spread between US and Japanese yields narrows, investors may sell the risk assets they bought.
However, the BoJ rate hike may not bring down Bitcoin. With odds of a 99% rise, market participants have already priced it in. As such, the currency may rally as investors buy the news and embrace the new normal.
Bitcoin price technical analysis.
The daily chart shows that the path of least resistance for Bitcoin is bearish in the short term. A bearish flag pattern is slowly forming. You have now completed the inverted flagpole formation and are now in the flag section.
Bitcoin remains below the Supertrend indicator and the 100-day exponential moving average. It is also approaching the 78.6% Fibonacci retracement level.
Therefore, there is a risk that Bitcoin price eventually turns lower and retests the year-to-date low of $74,423, about 15% below the current level.
While Bitcoin’s most likely outlook is bearish, it may rebound and retest the upper side of the flag at $94,500, and then resume the downtrend.
