Should you buy Bitcoin as its price tests key support?

The Bitcoin (BTC/USD) price has been under intense pressure in the past few days as concerns about the Federal Reserve rise. Bitcoin dropped to a key support of $45,560, where it has struggled to move below in the past few weeks.

Bitcoin and the Fed

The Bitcoin price has crashed by more than 32% from its all-time high. This performance is mostly because of external factors because on-chain data point to strong demand for Bitcoin. For example, the number of non-zero accounts has risen while more big holders have continued to add to their positions. 

Other data reveal that Bitcoin’s hash rate has jumped to an all-time high while mining difficulty has been rising. These are signs that Bitcoin is doing well.

The external factor that has contributed to the weak performance of the Bitcoin price is the Federal Reserve. 

In the past few months, the Fed has hinted that it will accelerate the tightening process this year. For example, in November, the bank slashed its asset purchases by about $15 billion. In December, it doubled the amount of purchases to $30 billion. This means that the Fed will end its quantitative easing in the first quarter.

The Fed has also hinted that it will hike interest rates three times this year. As such, there is a likelihood that the overall rates will rise to about 0.75% this year.

Therefore, the Bitcoin price has been under pressure because of the rising concerns about the Federal Reserve. Analysts believe that the coin will underperform since it did well in a period of easy money policies. This also explains why tech companies have continued their sell-off this year.

Still, some analysts believe that the Bitcoin price will keep rising as institutional demand rise. In a CNBC interview, the CEO of Nexo predicted that the BTC price will rise to $100k this year.

Bitcoin price forecast

The four-hour chart shows that something unique happened in the overnight session. The BTC price declined to a low of $45,560, which was an important support level. The price has struggled moving below this point several times before.

It remains slightly below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved to the neutral level of 40. Therefore, since the Bitcoin price has formed a head and shoulders pattern, there is a possibility that it will have a bearish breakout.

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