Bitcoin’s drop comes ahead key Federal Reserve interest rate decision, with a potential further decline that could take BTC price to $92,000.
Bitcoin’s BTC$104,070 price has dropped 4.75% a day after establishing its record high of around $108,365, and was trading for around $104,175 on Dec. 18.
The decline appears ahead of the United States Federal Reserve’s key interest rate decision, suggesting most Bitcoin traders are de-risking ahead of the event.
Bitcoin drops due to sell-the-news sentiment
The Fed will likely vote for another quarter-point rate cut on Dec. 18, especially in the wake of last week’s consumer price index, which showed inflation rising in November.
Bitcoin’s price surged by up to 13.20% since the CPI data release on Dec. 11, with its correction now reflecting a “sell-the-news” sentiment in the market.
Bitcoin’s decline is further due to an unclear Fed rate path ahead, with K33 Research analysts Vetle Lunde and David Zimmerman noting that the central bank may pause rate cuts in the coming months.
“We expect this week’s FOMC to contribute to the market’s volatility,” K33 Research analysts Vetle Lunde and David Zimmerman wrote in a note, adding:
“Following the FOMC, quiet macro weeks await, potentially setting the stage for Bitcoin momentum to further materialize during the holiday season.”
Bitcoin onchain indicator shows cautious profit-taking
The Stock-to-Flow (S2F) Reversion indicator is signaling cautious profit-taking as Bitcoin’s price trades near a new record high.
Historically, when the S2F reversion ratio rises above 2.5, it has often marked levels where the market shows signs of potential short-term corrections. When the indicator breaches 3, it suggests the market is overheating, often coinciding with local tops and periods of heightened volatility.
Conversely, when the S2F reversion ratio drops below 1, it indicates a buy signal. For instance, on Sep. 11, the metric fell below 1, which followed a sharp Bitcoin price rebound.
Between Dec. 16 and Dec. 17, the ratio dropped from 2.47 to around 2.27.
“A prudent strategy when using this indicator is to take moderate profits once the S2F reversion ratio hits 2.5 and to secure larger profits when the ratio exceeds 3,” said CryptoQuant analyst DarkFrost.
That appears to be the case with Bitcoin prices in the last 24 hours as the ratio treads around 2.5.
Bitcoin correction to $92,000?
Bitcoin’s price drop in the last 24 hours has appeared further due to weakening technicals.
First, the drop follows a growing bearish divergence between BTC’s rising prices and declining relative strength index (RSI) on the daily chart.
Simply put, Bitcoin’s upward momentum is weakening, which typically precedes a price correction such as the one happening today.
Second, Bitcoin’s drop is part of its prevailing rising wedge trend, where the price is rising inside two converging, ascending trendlines. On Dec. 18, BTC tested the wedge’s upper trendline as resistance, leading to a sharp decline toward its lower trendline support today.
Traditional analysts see rising wedges as bearish reversal indicators, resolving when the price breaks below the lower trendline and drops by as much as the wedge’s maximum height.
This puts Bitcoin’s downside target for December at approximately at around $92,000, coinciding with the 50-day exponential moving average (50-day EMA; the red wave).
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