Reasons Why This Bitcoin Price Recovery Could Be A Bull Trap: Fears of Recession

Bitcoin price bounce, arrives at a time of growing concerns about a potential U.S. recession. Despite the uptick in crypto prices, several troubling economic indicators are casting doubt on the rally’s sustainability. Last week’s weaker-than-expected manufacturing PMI data and a softening labor market report on September 6 have added to investor anxiety. While Bitcoin shows signs of recovery following a significant selloff, many fear this could be a classic bulltrap, with broader economic conditions threatening to pull prices down again.

Although influential figure Arthur Hayes recently closed his short position on Bitcoin and predicted a crypto market recovery, looming macroeconomic challenges and technical analysis hint at further declines. Experts caution that the current bounce could be a bull trap, tempting investors into false optimism before the downtrend continues.

Reasons Why Bitcoin Price Recovery Could be a Trap

1. The US Yield Curve has ‘uninversed’, adding to the fears of recession.
2. The upcoming Fed rate cut could dampen the optimism by triggering a sell-off in risk-on assets like Bitcoin.
3. Bitcoin’s inefficiencies to the downside and cautious bulls could create a headwind for BTC’s rally.

The US Yield Curve, a graphical representation of the relationship between interest rates and different maturities of U.S. Treasury securities, has ‘uninversed’ itself, slipping into the positive side after trending in the negative for nearly two years. 

This turning officially marks history’s longest inverted yield curve. The next longest occurred in 1929, right before the Stock Market Crash of 1929. 

Data from Game of Trades shows the longer the yield curve remains inverted, the larger the corresponding market drawdown, which impacts the crypto recovery.

This potentially jeopardizes Bitcoin and the rest of the global economy. Data from The Block shows the 30-day Bitcoin Pearson Correlation is positive for both the Nasdaq Composite and the S&P 500 while negative for Gold. 

Therefore, if a stock market crash follows closely after the yield curve inversion, it could spell trouble for Bitcoin price and signal the start of a prolonged bear market for the entire crypto sector, stalling the ongoing crypto recovery.

BTC Imbalance Could Crash Crypto Markets

Looking at the Bitcoin price chart, it is easy to see a range of market imbalances down to $27,000. This means BTC risks dropping over 45% to sub-30,000 prices to fill the fair value gaps at these price levels. 

During the August 5 crash, the BTC price nearly filled the $45,000 Fair Value Gap (FVG), but the return of whale investors pushed the price back up.

Typically, reaching new all-time highs is difficult with such significant market imbalances still in place. If it does occur, these areas of imbalance can act like magnets, pulling the price back down and potentially undermining the crypto recovery.

Given the current BTC price predictions, along with technical indicators and on-chain data, our analysts suggest there is a strong likelihood that the recent Bitcoin price correction has ended. However, investors may want to wait for additional confirmation on shorter timeframes before making any decisions.

BTC Bulls Remains Cautious Even in Short-Term Forecast

Now that the unemployment and Jobs report has passed, the market looks ahead to the inflation rate report, which is expected in less than ten days. According to the CME FedWatch Tool, there is a 100% probability of an ease (rate cut) on September 18. 

However, experts predict a higher likelihood (69%) of a modest 25 bps cut from the current 5.25%–5.5% range to 5%–5.25% rather than a more aggressive 50 bps cut.

While such a move could initially seem positive, it plays directly into raising the yield curve, accelerating recession fears, and potentially stalling the crypto recovery. Despite short-term optimism, bulls remain cautious as macroeconomic conditions could trigger another downturn in the market.

Data from CryptoQuant shows a six-month buildup of leveraged positions in the futures market. What usually follows is market volatility in the direction of most liquidity.

There have been three sweeps below the demand zone of the range since March, but none have been in the supply zone. This means the Bitcoin price may swing higher in the next couple of weeks for market makers to try to clinch the buy-side liquidity before the FOMC date. 

Conclusion

While the recent Bitcoin price recovery has sparked optimism, investors should remain cautious in light of broader macroeconomic conditions. The clearing of the longest inverted yield curve in U.S. history and persistent fears of a recession could undermine this rally, leading to further market corrections.

With the potential for the BTC price to drop to $27,000 due to market imbalances and the looming Fed rate cut decision, the possibility of a bull trap remains high, allowing for altcoins to rally. 

Frequently Asked Questions (FAQs)

1. What is causing fears of a recession in the United States?

Fears of a recession are being fueled by weak economic indicators, including disappointing manufacturing PMI data and a softening labor market report from early September 2024. Additionally, the U.S. yield curve, which had been inverted for nearly two years, has recently shifted back into positive territory. Historically, this has been a warning sign of an impending economic downturn.

2. Could the current Bitcoin price recovery be a bull trap?

Yes, the current Bitcoin recovery could be a bull trap. Despite a recent bounce, macroeconomic challenges, including fears of a recession and technical analysis, suggest that further declines could occur.

3. What is the relationship between Bitcoin price and the U.S. stock market?

Bitcoin price has shown a positive correlation with the Nasdaq Composite and S&P 500, meaning that if these indices experience a downturn, Bitcoin is likely to follow. This increases the risk of a market-wide crash, including in the cryptocurrency sector, if the stock market faces major corrections in response to economic conditions.

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Evans Karanja

Evans Karanja is a crypto analyst and journalist with a deep focus on blockchain technology, cryptocurrency, and the video gaming industry. His extensive experience includes collaborating with various startups to deliver insightful and high-quality analyses that resonate with their target audiences. As an avid crypto trader and investor, Evans is passionate about the transformative potential of blockchain across diverse sectors. Outside of his professional pursuits, he enjoys playing video games and exploring scenic waterfalls.

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