Bitcoin Price: As the market eagerly awaits the US Federal Reserve policy announcement, the price of Bitcoin (BTC) hovers around $26,000, remaining within its recent intra-day ranges. Investors anticipate the Fed to halt its aggressive interest rate hikes that have been implemented since March last year, resulting in a cumulative rate increase of 500 basis points (to 5.0-5.25%) over the past ten meetings.
In addition to the policy statement and post-meeting press conference with Fed Chair Jerome Powell, the central bank will provide updated economic projections and a new “dot plot.” The dot plot serves as a summary of forecasts from Fed policymakers regarding their expectations for future interest rates.
This upcoming Fed meeting has the potential to trigger significant volatility in the crypto markets due to the inclusion of these forward-looking components. Bitcoin has experienced a downward trend since reaching yearly highs in the mid-$31,000 range back in April. Recent factors contributing to this decline include the market’s reduced expectation of rate cuts for the second half of 2023 and the uncertain US regulatory outlook following actions taken against Coinbase and Binance by the US Securities and Exchange Commission (SEC).
Analysts predict that Wednesday’s Fed meeting will result in a “hawkish pause,” which may further exacerbate the short-term challenges facing Bitcoin. Although interest rates are expected to remain unchanged, the Fed is likely to keep the door open for future rate hikes, potentially reinforcing expectations of a hike in July, which is already the market’s base case.
The CME’s Fed Watch Tool currently indicates a 65% likelihood of a 25 basis points (or more) increase in rates by July. Economic projections are anticipated to show that the Fed expects inflationary pressures to persist above the desired 2.0% target, suggesting that near-term rate hikes are unlikely. This could lead to a reduction in market expectations for rate cuts at the end of 2023.
While the recent Consumer Price Index (CPI) inflation reading supported the case for a pause, analysts interpreted the sustained high core CPI readings as an indication of prolonged higher interest rates. According to the CME’s Fed Watch Tool, money market pricing implies a 22% chance of at least 25 basis points worth of rate cuts by the end of the year.
Further elimination of rate cut expectations for 2023 could push US yields even higher, potentially strengthening the US dollar and negatively impacting yield-sensitive assets such as gold and Bitcoin. Both gold and Bitcoin are considered non-yielding assets, and as yields rise, the opportunity cost of holding Bitcoin increases, potentially leading to selling pressure.
Despite the recent increase in yields and regulatory uncertainties, Bitcoin has managed to maintain support above the long-term resistance-turned-support level in the $25,200-400 range. The mid-$25,000s also offer additional support as the uptrend from late 2022 to 2023 comes into play.
However, Bitcoin has been trending lower within a bearish trend channel in recent months and is currently trading below its 21, 50, and 100-Day Moving Averages, indicating significant bearish momentum. Adding to the negative sentiment, a widely followed version of the Moving Average Convergence Divergence just issued a strong sell signal.
Many bearish analysts are targeting the 200-day moving average (DMA) around $23,700 as the next potential level for Bitcoin’s price decline.
In conclusion, the price of Bitcoin remains around $26,000 as investors await the US Federal Reserve’s policy announcement. This meeting has the potential to introduce volatility to the crypto markets, and analysts anticipate a “hawkish pause” from the Fed. Despite the challenges, Bitcoin continues to find support above key levels, but the bearish trend and technical indicators suggest the possibility of further downside. Traders and investors will closely monitor the Fed’s announcements and projections for insights into future interest rate movements and their impact on cryptocurrencies.