Posted on

FOMC Preview: Bitcoin and Crypto’s Fate Tied To Fed Rate Move

In the lead-up to the Federal Open Market Committee (FOMC) meeting scheduled for Wednesday, March 20, the Bitcoin and crypto market is experiencing a severe downtrend. BTC price has plunged roughly -10% in the past two days, and Ethereum (ETH) is down -12% in the same period.

The anticipation surrounding the Fed’s stance on interest rates has heightened in the wake of recent economic indicators, including unexpected spikes in the  US Consumer Price Index (CPI) and Producer Price Index (PPI), stirring volatility across markets, including digital assets.

The consensus, with a 99% probability according to the CME FedWatch tool, suggests interest rates will hold steady. Nonetheless, the spotlight turns to the Fed’s dot plot, a graphical representation of the individual members’ expectations for future interest rates, which could provide crucial insights into the monetary policy outlook for the coming months and years.

CME FedWatch Tool

Anna Wong, Chief US Economist for Bloomberg, remarked via X (formerly Twitter), “Another reason why FOMC [is] not ready to cut: members not yet of broad agreement of that need. Here’s visualizing the dispersion of FOMC views with the help of our new weekly NLP Fed spectrometer. “

How Will Bitcoin And Crypto React?

Macro analyst Ted, expressing his perspective on X, underscores the nuanced relationship between macroeconomic trends and the crypto market at the moment. Ted elucidated that spot Bitcoin ETF flows have taken the backseat while macro factors came to the foreground.

He stated via X, “If BTC is to be considered digital gold, it’s expected to mirror gold’s market movements, albeit with a higher degree of volatility. In the current climate, with the market bracing for the Fed’s upcoming meeting, macroeconomic factors momentarily take precedence, driven by recent developments in PPI and CPI figures.”

He further speculates that “Despite the eventual remarks from [Fed Chair] Powell, the market has already adopted a hawkish stance in anticipation of a ‘higher for longer’ interest rate scenario.”

Michaël van de Poppe, a noted figure in the crypto analysis domain, provided his insights on the recent downward price movement of Bitcoin via X, citing a mix of factors including the anticipation of the FOMC meeting and significant capital outflows from Grayscale‘s Bitcoin Trust. Van de Poppe advises, “It’s typically in these pre-FOMC periods, perceived as risk-off intervals, that the savvy investor finds opportunities to ‘buy the dip’.”

In a reflection of market sentiment adjustments, analyst @10delta on X pointed out the strategic positioning of investors in anticipation of the Fed’s rate decisions. “The market is currently pricing in a reversal to the November ’23 interest rate levels, a clear indication that investors are adjusting their expectations based on the Fed’s potential pivot signaled in the previous dot plot,” he noted.

Accordingly, he argues that the FOMC & dot plot will be a “buy the news” event as the market expectations are being properly adjusted. “The macro worries […] should dissipate & crypto idiosyncratic bullish factors, such as the ETF inflows […] as well as the BTC halving take hold. All considered I think there’s a good R/R for ‘buying the dip’ heading into the March 20 event,” the analyst added.

Goldman Sachs Predicts (Only) 3 Rate Cuts This Year

Goldman Sachs Research recently provided a detailed analysis in their March FOMC Preview. The report highlights the nuanced balance the Fed seeks to achieve between controlling inflation and supporting economic growth.

“Our revised forecast now anticipates three rate cuts in 2024, a slight adjustment from our previous prediction, primarily due to a modest uptick in the inflation trajectory,” Goldman Sachs analysts elucidated. They further speculate, “While the immediate focus is on maintaining current rate levels, the trajectory for rate cuts will hinge on inflation dynamics and economic performance indicators.”

Goldman Sachs further predicts that the Fed will still target a first cut in June. “This combined with a default pace of one cut per quarter implies that the most natural outcome for the median dot is to remain unchanged at 3 cuts or 4.625% for 2024,” the banking giant remarked.

As the crypto market and broader financial ecosystems await the outcomes of the FOMC meeting, the prevailing sentiment is one of cautious anticipation. Market participants are closely monitoring the Fed’s commentary for indications of future monetary policy directions via the dot plot.

The question for the Bitcoin and crypto market is whether there will be an unpleasant surprise or whether market participants were right with their “higher for longer” policy assumption.

At press time, BTC found support at the $62,400 price level, trading at $63,118.

Bitcoin price

Posted on

Bitcoin Eyes $45,000 Amid Anticipation Of FOMC Decision

After a challenging two weeks resulting in a 21% drop, the Bitcoin (BTC) price rebounded emphatically, closing last week on a strong note. The premier cryptocurrency witnessed a surge that saw it end with a Doji Hammer candle on its weekly chart, signaling a potential bullish reversal. Notably, this uptick has propelled Bitcoin’s value back into its previous range of $41,300 to $45,000.

Keith Alan, the co-founder of Material Indicators, highlighted the significance of this pattern, stating, “Looks like we have a Doji Hammer candle forming on the BTC Weekly chart. That typically indicates a bullish reversal is coming. […] If we do indeed print a Hammer, Bitcoin bulls will need to overcome resistance at the bottom range of the Golden Pocket to have a chance at a meaningful move to retest the $44k – $45k range.”

Bitcoin has also reclaimed its position above the 20- and 50-day Exponential Moving Averages (EMAs), hinting at the potential for further gains. However, the anticipation surrounding the first Federal Open Market Committee (FOMC) meeting of 2024 adds a layer of complexity to Bitcoin’s trajectory.

FOMC Preview

The upcoming Federal Open Market Committee (FOMC) meeting, is anticipated to be a major determinant in the short-term movement of Bitcoin’s price, as it could signal significant shifts in the United States Federal Reserve’s monetary policy approach.

Macro analyst @tedtalksmacro provided an in-depth perspective: “This week’s FOMC meeting is pivotal.” Currently, the market is expecting the Fed to maintain the status quo, with a 97% probability against any policy change.

“However, there’s a 46% chance of a rate cut by the March meeting. Investors should closely monitor for signs of the Fed moving towards a data-dependent approach, any recognition of inflation nearing their 2% target, and potential adjustments to Quantitative Tightening (QT) policies,” Ted remarked.

After this week, the Committee will meet again on March 19-20. Thus, this week’s FOMC meeting could lay the foundation for the critical decisions in March, which could have immediate and pronounced effects on market dynamics.

The Federal Reserve has forecasted that it will reduce interest rates three times this year. The market anticipates a possibility of five or more cuts. There is a general agreement that the initial reduction in rates might occur in the second quarter, though there is substantial support for the possibility of it happening at the March meeting.

Goldman Sachs has been consistently predicting a rate cut by the Fed in March. Their analysis is grounded in the significant progress observed in inflation control.

The post-FOMC meeting press conference will be a focal point, as investors seek clarity on the collective view of the FOMC members, including the newly rotated regional Fed bank presidents. These officials, known for their cautious approach towards rate cuts, will play a significant role in shaping the committee’s decision-making process.

December’s inflation report indicated a 3.4% year-on-year increase, with core prices rising more rapidly than many economists had projected. However, the Department of Commerce’s personal consumption expenditures (PCE) index, the Fed’s preferred inflation measure, showed more promising signs of inflation cooling down to 2.9%, aligning closer to the Fed’s target.

Implications For The Bitcoin Price

Renowned crypto analyst @ColdBloodShill drew attention to the historical inverse correlation between the DXY (Dollar Index) and Bitcoin. He shared the following chart and stated: “Heard you needed some hopium. The last two FOMC events have marked the pico top of the DXY. Next one on Wednesday.”

DXY

A potential drop in the DXY following the FOMC meeting could act as a catalyst for Bitcoin to rise towards the $45,000 mark. In addition, there are possible changes in QT policy that could indicate an increase in the supply of money. Such developments could serve as a major catalyst for the Bitcoin price as the hardest asset of the world.

Bitcoin price