On Friday (August 22), as the Asian trading session began, Bitcoin continued its volatile decline this week, trading slightly above $112,000. Cryptocurrency investors are holding their breath ahead of Fed Chair Jerome Powell's speech on Friday in Jackson Hole, Wyoming.

According to Binance data, Bitcoin has fallen about 1% in the past 24 hours and nearly 5% over the past week, currently priced around $112,000. The world's second-largest cryptocurrency, Ethereum, also dropped 2% in the past day to $4,240.

The pullback of the two major cryptocurrencies aligns with a broader market decline. The total market capitalization of all cryptocurrencies fell 1% during the day to $3.9 trillion. Meanwhile, the S&P 500 index has dropped 0.3% since the market opened on Thursday.

'Investors seem increasingly doubtful that Powell will hint at a policy shift in Jackson Hole,' said James Butterfill, head of research at cryptocurrency asset management company CoinShares, to Fortune magazine.

The market awaits Powell's policy shift

The pullback in the digital asset market this week comes as traders try to predict whether the Federal Reserve will cut rates in September. If rates are cut, funds are likely to flow from U.S. Treasury bonds to higher-yielding risk assets like cryptocurrencies.

In fact, the world's largest cryptocurrency, Bitcoin, has fallen about 10% from its historical high of $124,290 set on August 14. While the market generally still expects a rate cut in September, digital asset traders seem to be betting that Powell will take a hawkish stance on Friday and will not signal a possible rate cut.

According to Sean Farrell, head of digital asset strategy at Fundstrat, the Bitcoin spot price spread between the largest U.S. exchange Coinbase and the world's largest exchange Binance has entered the discount zone, indicating 'strong selling pressure in the U.S. spot market.' He stated on Tuesday, 'From some indications, the market consensus seems to be that Powell will maintain an overall hawkish stance.' He also noted that Bitcoin options pricing across different maturities shows signs of 'risk aversion.'

Just as Powell's speech could sway the stock market, it may also weaken the momentum driving Bitcoin's rise. Generally, lower interest rates encourage investors to take on more risks, thereby boosting demand for speculative assets like stocks and cryptocurrencies.

However, Farrell pointed out that the weakness observed a few days before Powell's speech could form a bottom before a significant event. In other words, 'sell the expectation, buy the news.'

Since 1982, the Kansas City Fed has held an annual symposium in Jackson Hole. The Fed Chair typically speaks at the event, and just like any public statement from Powell, investors scrutinize his remarks to gauge whether the Fed will cut rates.

Last week, analysts were almost certain that a rate cut was imminent, as the U.S. Bureau of Labor Statistics (BLS) report indicated a mild rise in overall inflation to 2.7% in July, lower than most expectations. The market soared, and Bitcoin set a new high.

But two days later, the BLS report showed that the U.S. Producer Price Index (PPI) rose 0.9% in July, marking the largest increase since June 2022. This news led to a decline in the cryptocurrency market, which has remained low over the past week.

A bellwether for U.S. monetary policy indicates that a rate cut in September is not a done deal. According to the CME FedWatch tool, futures traders currently estimate a 73% probability that the Fed will lower the target rate by 0.25 percentage points at its next meeting, down from a high of 92% a week ago.

Bitcoin's outlook remains strong

However, some market observers remain optimistic. Ira Auerbach, head of venture at Offchain Labs and former director of Nasdaq's digital asset department, said, 'In my view, this drop feels more like a minor correction rather than a trend reversal.'

He added that U.S. supportive crypto policies remain intact, such as President Donald Trump’s recent executive order allowing the inclusion of cryptocurrencies and other private assets in 401(k) retirement accounts. Auerbach also noted that the adoption rate of stablecoins (cryptocurrencies pegged to underlying assets like the dollar) is also rising.

'I expect this pullback will be absorbed by the market,' he said, 'Once the macroeconomic fog clears, the upward trend will continue.'

Ned Davis Research analysts Philippe Mouls and Pat Tschosik remain 'bullish' on Bitcoin. They stated, 'Usually, Bitcoin experiences a significant rise or a 'blow-off' rally before each major drop. We have not seen such a trend, so we believe that Bitcoin's current long-term bull market is not over yet.'

However, they also pointed out some worrying signs: trading volume on the Coinbase platform is increasingly shifting toward non-Bitcoin cryptocurrencies, with assets outside of Bitcoin currently accounting for 55%, the highest level since Q4 2021. The world's largest cryptocurrency, Bitcoin, has not seen a 50% pullback in 661 days, and in about two months, it will break the longest record of 738 days.

If Bitcoin's price rebounds in the short term, the stock market may quickly follow. Tom Lee from Fundstrat stated on social media on Wednesday, 'Cryptocurrencies BTC and ETH are leading indicators for the stock market. Both reached a bottom last night = the stock market will bottom by Friday.'

Bitcoin Technical Analysis

Bitcoin's price initiated a new round of decline after breaking below the $115,000 level. BTC gained bearish momentum and fell below the $113,200 support area. The price further broke below the $112,500 support area and the 100-hour simple moving average, testing the $112,000 region. A low was formed at $112,100, and the current price is attempting to rebound upwards, targeting the 23.6% Fibonacci retracement level of this decline from the $124,420 high to the $112,100 low.

Currently, Bitcoin's trading price remains below $114,000 and the 100-hour moving average. Immediate resistance on the upside is around $113,500. A key downtrend line has also formed on the BTC/USD hourly chart, with resistance at $113,500.

The first key resistance level for Bitcoin is at $114,500. The next resistance level is at $115,000. If it can close above $115,000, the price may rise further and test the $116,500 resistance level. If it breaks above this level, the price is expected to rise to $118,200, which is close to the 50% Fibonacci retracement level from the $124,420 high to the $112,100 low. The main upward target may be $120,000.

On the downside, if Bitcoin fails to break through the $114,500 resistance area, it may decline again. Immediate support is near $112,500. The first major support is at $112,000. The next support level is in the $110,500 region. If it breaks below this level, the price may further test the $108,250 support. Major support is at $105,500, and if it breaks below this, BTC may suffer significant damage.

Technical Indicators

MACD (Hourly): Bearish momentum is weakening.

RSI (Hourly): BTC/USD RSI has rebounded above the 50 level.

Main support levels: $112,500, $112,000

Main resistance levels: $113,500, $115,000