Problems for Bitcoin this week could be created by the US Federal Reserve. In what way?
This week could be the real test for Bitcoin. Still, the coming days are filled with important events that will affect the macro economy, with the latter having a direct impact on cryptocurrencies. The most important among the scheduled events is the US Federal Open Market Committee (FOMC) meeting, where they will discuss raising the benchmark lending rate. It is expected that they will definitely raise the rate, which will again have a negative impact on the markets. We tell you more about the situation.
Note that the activity of the authorities in the financial parallel is caused by significant inflation around the world. In particular, a fortnight ago the consumer price index data was announced, which amounted to 9.1 percent year-on-year. This was the biggest increase since 1981.
The onset of a bear market
Accordingly, the authorities are now interested in lowering inflation, and the key rate instrument has traditionally been used for this purpose. As it rises, investor appetite becomes less and the national currency strengthens.
How does the US lending rate affect Bitcoin?
The FOMC is scheduled to meet on July 26-27, with an expected rate hike of 75 or 100 basis points, that is 0.75 or 1 per cent respectively. The FOMC has raised the rate several times before and it has always had a negative impact on the traditional markets.
The whole problem is that raising the base lending rate forces banks to lend at correspondingly higher interest rates. This applies to all areas - mortgages, loans on movable and immovable property. Financial flows in this case are slowing down and a corresponding negative reaction is appearing on the stock market. They aren't raising the rate just for fun - it's all about fighting inflation, which has been skyrocketing in the USA and around the world lately, too.
According to Cointelegraph’s sources, FOMC meeting will last for two days with the final decision to be made at 21:00 Moscow and Kyiv time on July 27. Experts believe it is worth expecting increased volatility in the markets – and cryptocurrencies in particular – some time before the marked hour.
In addition to the said meeting, this week will also see the release of financial statements from many major technology companies in the US. As noted by trader Mac10 on Twitter, these two events have already caused the Nasdaq Composite Index to fall several times.
FOMC meetings, reporting seasons of technology companies and their impact on the Nasdaq Composite Index
Right now, the correlation between Bitcoin and the Nasdaq Index is at its highest level in three months, as the corresponding chart from IntoTheBlock confirms.
Bitcoin and Nasdaq index correlation chart
The trend is unlikely to change in the next two days. Which means the decision could once again lead to a possible collapse of BTC, analysts believe.
An important line on the Bitcoin chart
Another cause for concern is the BTC price’s pullback from the 200-week moving average. It now serves as a strong resistance level that most traders are focused on.
Bitcoin’s deviation from the 200-week moving average
As a reminder, in practice, the resistance level means that traders prefer to get rid of crypto-assets once it is reached. Most likely, in this case, they have bought coins at a certain level and don't want to take any more risks, preferring to exit the market. And as the sale of the asset follows, it has a negative impact on its value.
Many cryptocurrency enthusiasts expect that BTC’s inability to consolidate above the moving average indicates that there is no noticeable pressure on the market from buyers. This means that in the near term, Bitcoin will trade in a horizontal channel or go down again, analysts say. However, this is only a version of a possible development.
A trader under the nickname Venturefounder has a much gloomier forecast – he expects the value of BTC to fall as low as $14,000. Here’s his rejoinder.
In line with past halving cycles, this is still my most realistic prediction for Bitcoin until the next similar procedure. BTC holders will capitulate in the next six months and the cryptocurrency will hit the bottom of the cycle somewhere between $14,000 and $21,000. It will then fluctuate around $28,000 to $40,000 for most of 2023. The $40k line will be broken by the next halving.
Again, the version voiced may trivially not come true. We still recommend making investment decisions solely according to your own analysis.
Venturefounder’s chart looking at Bitcoin’s global cycles
As a reminder, the market is now about halfway through the next halving – this procedure occurs every 210,000 blocks or roughly four years. There are approximately 598 days or about 19 months until the next cut in the reward to miners per Bitcoin block.
Countdown to the next Bitcoin halving
To round off the news, there is at least one positive factor to note – the crypto market’s gradual emergence from a phase of complete panic. Recall that not too long ago, crypto traders were experiencing “intense fear” due to the sharp price collapse.
Fear and Greed Index dynamics
Now the Fear and Greed Index from the Alternative portal is 26 points out of 100. Whereas in the previous month it fluctuated around 14 points. The higher this index is, the more confidence in growth is shown by most market players.
We believe that the Fed's decision will indeed have a marked effect on the markets since traders and investors traditionally follow the movements of this index. Therefore it is safe to assume that the coming days will be turbulent and eventful. It will surely be characterized by increased volatility of crypto-assets, which is already observed now.
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