With the Fed rate decision, the Bitcoin price is expected to bounce on hopes that the FOMC rate program will peak.
Fed expects interest rates to stay at their peak
The analyzed data suggests that the strong correlation between Bitcoin and gold could mark the beginning of a price hike, depending on whether the Fed’s walking schedule is in place by March.
The Federal Open Market Committee (FOMC) meeting will end on February 1, and the market expects a 25 basis point hike that will raise the fed funds rate to 4.5% to 4.75%.
The next FOMC meeting is scheduled to end on March 22, with the majority of analysts expecting another 25 basis points gain. From there, the Fed is expected to keep interest rates at the top of its marching program.
Bitcoin and FOMC meetings
Analyzing the Bitcoin price percentage change for each 2022 FOMC meeting the day before, during, and after the event, 13 of the 24 samples resulted in declines for the leading cryptocurrency.
When the Fed first started raising rates, a negative Bitcoin performance could be explained by selling pressure from fearful markets. During the year, however, a less negative reaction is expected as the market accepts the inevitability of higher interest rates.
More important than the daily price movements is the long-term movement on the Fed’s rate chart.
Strong BTC-Gold correlation
Plotting the performance of the S&P and gold against the federal funds rate since 1998, it was noted that the peak of the Fed’s marching program coincided with the decline in the price of gold, as indicated by the black arrows on the chart.
In these cases, the gold price continued to rise significantly. For example, it went from $400 per ounce to $1,920/oz over a six-and-a-half year period in late 2005. Similarly, pauses in the interest rate plan coincided with the S&P bottom, indicated by the red arrows below, leading to sustained gains for tech stocks.
Since February 2022, the price of Bitcoin and gold showed an 83% correlation; this is the highest rate in more than a year. If gold reacts as in past examples of the Fed’s marching program and Bitcoin imitates gold, BTC could take a significant jump in price.
That said, it’s not certain that March will be the top of the Fed’s rate chart. In addition, other macroeconomic and geopolitical factors come into play, such as the situation with Genesis following its bankruptcy filing.
Bitcoin shows volatility as Fed rate decision awaits
Data from TradingView shows that Bitcoin started to come under pressure late on Sunday, with bears crushing the bulls at the $23,700 support level and managing to drop BTC to a daily low of $22,581 on Monday before bullish reinforcements arrived to stop the decline.
According to Jim Wyckoff, senior technical analyst at Kitco, the weakness seen in BTC on Monday was the result of ‘some slight profit taking and a downward correction after the market hit a five-month high overnight’.
So far, the pullback has done little to change the prevailing view, as BC bulls hold the firm’s overall short-term technical advantage, as a price uptrend is present on the daily bar chart, Wyckoff said. ‘Least resistance path for prices in the near term, continues horizontally upwards.’ This view was largely shared by market analyst Crypto Tony, who posted the tweet below stating that the upward price target remains at $25,000.
Insight into where it needs to close January for Bitcoin to have a bullish outlook was provided by market analyst Rekt Capital, who posted the tweet below highlighting the importance of the $23,400 support.
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