Bitcoin (BTC) prices hovered around $26.000, within the recent intraday range prior to the Federal Reserve's important policy statement on Wednesday
Bitcoin (BTC) prices hovered around $26.000, within the recent intraday range prior to the Federal Reserve's important policy statement on Wednesday.
It is expected that the US Central Bank will suspend its active interest rate hike cycle starting from March last year and raise interest rates by 500 basis points (to 5.0-5.25%) in the past 10 meetings.
The Federal Reserve will also release the latest economic forecasts and a new "dot matrix", as well as usual policy statements and post meeting press conferences with Federal Reserve Chairman Jerome Powell.
The dot matrix chart summarizes the predictions of Federal Reserve policymakers on interest rate levels in the coming years. Considering the other two forward-looking components of Federal Reserve policymakers' expectations for the economic and monetary policy outlook, Wednesday's meeting was touted as potentially triggering significant fluctuations in the crypto market.
Since hitting an annual high of $31.000 in mid April, Bitcoin has been falling. Recently, the U.S. Securities and Exchange Commission (SEC) took action against Coinbase and Binance under the pressure of 1) the withdrawal of the market's bet on interest rate reduction in the second half of 2023 and the recent 2) the uncertainty of the U.S. regulatory outlook.
Hawks pause weighing Bitcoin?
Many analysts expect Wednesday's Federal Reserve meeting to be a 'hawkish pause', which may exacerbate Bitcoin's short-term headwind.
Although the Federal Reserve is expected to maintain interest rates unchanged, it is expected that the bank will open the door to further rate hikes, which may enhance expectations for a rate hike in July (which is already the market's natural scenario).
CME's Federal Reserve observation tool currently expects a rate hike of 25 basis points (or more) by July, which is approximately 65%.
At the same time, economic forecasts may indicate that the Federal Reserve expects inflation pressure to remain near the Fed's 2.0% target for a period of time, which means that the dot chart is unlikely to indicate a recent interest rate hike.
This may encourage the market to further withdraw its bet on a rate cut by the end of 2023.
Although the overall consumer price index (CPI) inflation data released on Tuesday was lower than expected and supported a pause in interest rate hikes, analysts interpreted the still hot core CPI data as supporting the view that interest rates should remain high for the long term.
According to CME's FedWatchTool, money market pricing still implies a possibility of reducing interest rates by at least 25 basis points from current levels by the end of the year, which is approximately 22%.
The yield of two-year treasury bond hit the highest level of 4.7% since mid March on Tuesday, further digesting the expectation of interest rate cut in 2023 may further push up the yield of US treasury bond.
This may support the US dollar and suppress yield sensitive assets such as gold and Bitcoin.
Gold and Bitcoin are both non income assets.
This means that as the yield increases, the opportunity cost of owning Bitcoin increases, reducing its perceived valuation and encouraging selling.
Will Bitcoin soon fall below $25000?
Although the recent yield and uncertainty have increased due to the action taken by the SEC against the major players in the US Cryptocurrency industry, Bitcoin continues to remain above the long-term resistance to support of the US $25200-400 region.
The upward trend from the end of 2022 to 2023 also played a role as support for the medium-term of $25.000.
However, in the past few months, Bitcoin has been falling in the range of bearish trend channels, and is not lower than its 21, 50 and 100 day moving average, which means that the Cryptocurrency still has an obvious bearish trend.
To make matters worse, the widely watched moving average convergence divergence (looking at the deviation between the 12 week and 26 week moving averages) has sent a strong selling signal from Gangfeng.
Many people believe that Bitcoin may soon decline, and some bears have turned their attention to the 200 day moving average of around $23.700
(Personal opinion, not as investment advice)
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