Fears of Recession Abound, Why This Bitcoin Price Recovery Could Be A Bull Trap

The recent crypto recovery market comes amidst growing fears of a recession in the United States and a struggling Bitcoin price, fueled by a series of concerning economic indicators.  Last week’s disappointing manufacturing PMI data, coupled with a softening labor market report on Friday, September 6, has left investors on edge. While the cryptocurrency market is showing signs of recovery after a severe selloff, the rally may be short-lived. 

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.

Bitcoin Price Recovery: US Yield Curve ‘Uninversed,’ Triggers Fears of Recession

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 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.

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. 

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Evans Karanja

Evans Karanja is a content writer and scriptwriter with a focus on crypto, blockchain, and video gaming. He has worked with various startups in the past, helping them create engaging and high-quality content that captures the essence of their brand. Evans is also an avid crypto trader and investor, and he believes that blockchain will revolutionize many industries in the years to come. When he is not writing, you can find him playing video games or chasing waterfalls.

Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.