Bitcoin analyst warns 40% dump as US-Iran tensions escalate

Bitcoin's two-month rally may be nearing exhaustion as a bearish RSI divergence and renewed US-Iran conflict threaten a repeat of May's 40 percent decline.

Bitcoin traded at $78,033, down 0.13 percent, as analyst Midas warned that a bearish RSI divergence could trigger a 40 percent decline toward $54,000.

"The current setup looks mega overheated because RSI has reached higher levels than in May," Midas said in a Monday post on X, comparing the pattern to the roughly 40 percent drop that followed a similar divergence earlier this year.

The warning comes as US forces struck two Iranian rocket launchers on Larak Island near the Strait of Hormuz on Sunday, prompting retaliatory attacks from Tehran. Brent crude climbed above $90 a barrel as traders priced in supply risks through the crucial shipping route. Rate futures as of 07:53 UTC now price a 61.9 percent chance of a 25-basis-point hike at the Sept. 16 Federal Reserve meeting, up from 41.4 percent a week ago, following Fed Chair Kevin Warsh's hawkish Jackson Hole remarks.

On the four-hour chart, Bitcoin is consolidating within a symmetrical triangle near $78,600, with the 50-period EMA at $77,400 providing immediate support. A decisive break below the triangle's lower trendline could send BTC toward $74,800, near the 100-period EMA at $74,570. Conversely, a breakout above the upper trendline near $80,000 would invalidate the immediate bearish setup.

Bitcoin's RSI has climbed above 80 even as BTC approaches the same broad resistance zone that capped its previous advance, creating the bearish divergence Midas flagged. Unless Bitcoin can convincingly break and hold above $83,000, the larger bearish trend remains intact, he said.

The geopolitical backdrop adds a fresh layer of risk. Higher oil prices could make it harder for the Federal Reserve to ease monetary policy, keeping interest rates elevated and tightening financial conditions. That combination reduces demand for risk assets like Bitcoin, which has rebounded more than 35 percent over the past two months. The US dollar index has also strengthened on the hawkish Fed outlook, adding further headwinds for BTC-denominated assets. Warsh's remarks at Jackson Hole emphasized that inflation remains above the central bank's 2 percent target, reinforcing the case for tighter policy.

A 40 percent drawdown from current levels would mark one of the steepest corrections in Bitcoin's current cycle, potentially triggering broader risk-off across the crypto market. Ethereum and major altcoins typically follow BTC's lead in such selloffs, extending the impact across the sector. The $54,000 target would represent a significant retracement from recent highs, testing levels not seen since earlier in the year. Traders will watch the Sept. 16 Fed decision and any further escalation in the Strait of Hormuz as the next triggers.

This article is for informational purposes only and does not constitute investment advice.