If the Fed continues to raise rates. Despite the likelihood of an increasing unemployment rate. Bitcoin’s price may start to decline again. Since September 7, Bitcoin (BTC) has recovered by 20%, reaching over $22,500. But in the long run, bull trap hazards abound as Cathie Wood, and Elon Musk raise the alarm about a future deflation collapse.
“Deflation in the pipeline,” says Cathie Wood
Over the weekend, the CEO of Tesla warned of a significant increase in Federal Reserve interest rates. He said that it could raise the likelihood of deflation. In other words, Elon Musk predicts that as unemployment rises in the US. There will be a decline in demand for goods and services.
Rate increases are historically detrimental to Bitcoin this year. In this context, the almost 50% decline in the price of BTC has occurred during the time. It was when the Fed increased its benchmark rates from near zero in March 2022 to 2.25%–2.50% in August 2022.
The labor market has proven to be highly resilient up until this point. However, the most recent report from the Bureau of Labor Statistics indicates that the unemployment rate has increased to 3.7% from 3.5% in August.
Even Alphabet (Google) issued a warning that it may soon resort to layoffs. In order to maintain a 20% increase in efficiency. Jerome Powell, the chairman of the Federal Reserve, has indicated that the central bank may raise rates further. In order to reduce inflation to their preferred objective of 2%.
The consumer price index (CPI) for the United States was up 8.5% as of July. On September 13, the August inflation data is due to be released. According to a Reuters poll of economists, the rate will drop to 8.1%. Due to a recent decline in energy costs.
That is still well below the Fed’s aim of 2% inflation. Which, in the opinion of David Blanchflower, a former member of the Bank of England rate-setting committee, will result in a harsh landing. Thus, just as Elon Musk forecasts deflation. A hawkish Fed may bring increased unemployment and an economic downturn.
Bitcoin reaching $14K?
Additionally, macroeconomic fundamentals may cause Bitcoin’s bearish technicals to manifest. Especially on the daily chart. A reversed U-shaped price trend (cup) followed by a brief uptrend (handle). Both of which occurred atop a common support level known as the “neckline”, Appear to have formed on Bitcoin.
Also read: A Successful Shadow Fork Completes Ethereum’s Preparation For The Merge
