The cryptocurrency market is bracing for a potentially volatile week with the Federal Open Market Committee (FOMC) meeting casting a long shadow. The leading cryptocurrency, Bitcoin, has seen a significant decline in price and is currently trading around $60,189, indicating a decline of over 5% in the last 24 hours. This decline reflects broader market concerns surrounding the Fed’s upcoming interest rate decision.
FOMC meeting and interest rate dilemma
Today, the FED is expected to announce its interest rate decision around 21:00 CET. Expectations for a rate cut have changed greatly since the beginning of the year. Initial fantasies of multiple outages have given way to the possibility of just one by December. Wall Street banks are also divided, with estimates for the first cut varying between July and December. Further complicating the scenario, some Fed policymakers have hinted at a potential interest rate hike, leaving investors distrustful of the Fed’s next move.
Analysts predict that strong inflation numbers could force the Fed to maintain higher interest rates for longer. This can lead to stagflation, a scenario in which inflation continues while economic growth stagnates. Financial advisor Kurt Altrichter outlines two potential consequences of the Fed’s decision:
- Fixed rates: In this scenario, Altrichter predicts a modest rise in stocks as investors take comfort in the absence of interest rate hikes. He expects the S&P 500 to rise slightly, Treasury yields to fall modestly, and the dollar to remain steady. Commodities such as oil and Bitcoin may see a small increase.
- Dovish reversal: If the Fed adopts a more dovish (accommodative) stance, Altrichter predicts a more significant rise in the S&P 500 and further declines in Treasury yields.
Bitcoin and the crypto market are feeling the heat: Opportunity to buy the dip?
The crypto market, especially altcoins, is particularly vulnerable to pre-FOMC volatility. The prospect of higher interest rates and the potential for a safe flight to the dollar contributed to the crisis. Bitcoin remains under significant selling pressure despite a brief recovery above $60,000. The nearly 6% drop in Bitcoin price has created fear, uncertainty and doubt (FUD) among investors. However, some analysts see this as a potential buying opportunity.
Cryptocurrency expert Ali Martinez underscores a historical trend where a similar decline followed by a touch of the 100-day EMA and a low RSI reading precedes a significant price recovery. However, Martinez warns against a permanent close below the 100-day EMA, which could signal a further decline towards the 200-day EMA towards $52,000. On-chain analysis firm Santiment has observed an increase in “buy the dip” calls coinciding with the price decline. This indicates that a potential conflict has arisen between traders; Some see this as a buying opportunity, while others remain cautious.
Disappointing performance in April
Adding to the bearish trend is Bitcoin’s worst monthly performance since November 2022; There was a decrease of approximately 16% in April. This decline follows a period of high anticipation around the launch of US Bitcoin ETFs, which initially pushed the price to around $74,000 in March. Even the much-anticipated launch of Bitcoin and Ether ETFs in Hong Kong failed to generate the expected momentum; trading volume has lagged significantly behind US ETF launches earlier this year.
This week looks like it will be a very important week for the cryptocurrency market. The FOMC meeting will be in focus, with potential ramifications for Bitcoin and the broader crypto landscape. Analysts are divided; Some predict a potential relief rally, while others warn of further declines. Only time will tell how the market will react to the Fed’s decision, but one thing is certain: volatility will likely remain high.
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