What if Bitcoin already priced in a hawkish Fed? Pessimists expect further declines
By Noemi Jansana / Alejandra Zamora
Date: Wednesday 04 May 2022
(Sharecast News) - World markets are on edge on May 4th, awaiting the US Federal Reserve´s (Fed) announcement of its monetary policy decision, which is expected to be much more hawkish than the world's most powerful central bank was anticipating. The market, however, largely discounted a 0.5% rate hike and while there are more than a few who believe that the FOMC(Federal Open Market Committee) could surprise with a hike of up to 0.75%, several voices have been raised to warn that the central bank's forward guidance will be decisive in proving right those who believe that hawks will reign at the central bank.
However, there are risks that recent weakness in the US economy will tie the more hawkish members of the FOMC short. Therefore, stocks, cryptocurrencies and currencies could stage a relief rally.
Experts indicate that the market will also pay attention to the US central bank's balance sheet reduction, almost more than the rate hike itself in the scenario of a 50 basis point increase. In short, a lot is at stake in assets in general and it all depends on "how hawkish the Fed will be," stated Jeffrey Halley, analyst at Oanda. The weakness in cryptos is manifest, with investors exiting a market whose capitalization stands at $1.71 trillion.
Bitcoin (BTC) is trading around $38,000 and has quietly moved down toward the January support line, today at around $37,400. "If the FOMC is hawkish, support could fail, signaling a downward correction to $33,000. Failure of $33,000 would trigger an uglier selling wave that targets below $20,000," Halley explained.
"Bitcoin is struggling to get a rally to $40,000, a decisive inflection point, as investors remain cautious about buying risk assets. The digital currency needs a new catalyst, as Wall Street sentiment remains quite negative, even though it may have already priced in the Fed's hawkish spike," noted Edward Moya, an analyst at Oanda.
Other market data shows that while the BTC price remains under pressure, its "daily active addresses" have increased. Bitcoin's "base" network activity continues to grow, according to Santiament data.
On the other hand, Ethereum (ETH) also followed a similar path and tracked the Bitcoin price correction since the beginning of the year. Over the past week, the price of ETH has hovered around $2,800.
Given the current backdrop, there are signs that the Fed will ultimately pass without fanfare for this market, as without a clear trigger from the FOMC meeting, further consolidation can be expected, "as option sellers try to make a return by shorting volatility," they commented from Dexterity Capital. "50bps is not going to be the trigger, because we've all seen it coming," they concluded.
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