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• Bitcoin has dropped through a crucial support level at $18,700
• The U.S. Dollar Index is going the opposite way, soaring to fresh highs
• This is a recipe for disaster for the crypto market

Bitcoin is sitting very precariously right underneath a crucial support zone after yesterday’s interest rate hike caused the U.S. Dollar Index to spike. The DXY has now broken through the last resistance before its 2002 top of 120, and with more money rushing to the safe haven of the dollar it seems that both crypto and traditional markets are about to take another round of pounding.

Bitcoin Has Dropped Through Crucial Support

Following yesterday’s FOMC meeting, Bitcoin dropped to $18,200, although it has since rebounded to $18,730. However, this still leaves it sitting under a crucial level of support near 2017’s high:

Since dropping back down to this region in June, this level has acted as an area of strong support, but this has not happened so far. This leaves us with two scenarios to look out for over the next few days. The first is a recovery back above this line in order to reinforce its strength:

The other scenario is one that will please those on the sidelines. If $18,700 instead flips from support to rejection, we can expect something like the following:

The reason we can be confident on these levels is because of prior support and resistance:

Two Factors Driving Drop

There are two factors driving the theory that the latter eventuality is the more likely. The first, which we covered last week, is that the cost of living crisis as tying up all available capital from retail investors. This means that there is no fresh money coming into the crypto space, and until it does it will just be the same old money being recycled from coin to coin while the market in general stagnates.

This cost of living issue doesn’t look like it’s going to be resolved anytime soon, meaning that there are fewer reserves for the crypto market to call on.

The second reason is a knock on effect of this, and something we have covered many times in the past two years – the U.S. Dollar Index. The DXY has been on a tear for two years now, and yesterday is finally broke clean through the last resistance on the way towards its 20-year top:

This 120 top now looks all but inevitable, especially with Federal Reserve policy helping it to get there, meaning that sitting on the sidelines and waiting for a reverse is still the best policy – however long that might take.