We are just hours away from the Fed’s announcement of rate hikes and Chairman Jerome Powell hosting the FOMC press conference. These events will occur in 2022. bitcoin and caused a certain level of concern for the crypto markets. With the goal of reducing inflation, the Federal Reserve continued to raise interest rates throughout the year. Because of this, most risky assets, including crypto, have fallen.
The collective sentiment is quite positive at the moment. According to CME data, there is a 99.99% probability that the interest rate will increase by 25 BPS. Powell’s speech after the interest rate announcement is expected to be dovish. This would technically mean the possible use of quantitative easing while loosening interest rates going forward. A bright bullish scenario for Bitcoin and others.
Still, the market expects Powell to speak hawkishly. As stated above, its aim from the beginning remained to reduce inflation. The president’s priority is not to help SPX recover, but to continue pushing a 2% inflation target. Therefore, it seems equally balanced at the moment. It should neutralize the overall Bitcoin movement with a hawkish stance of 25 basis points. However, it will not be that easy.
Other Important Factors to Consider
The reason why there is a 99.99% probability of 25 BPS today is the massive slowdown in the labor market. The 3-month moving average of U.S. Non-Farm Payrolls has dropped significantly, indicating that the hiring process has slowed. In addition, a large proportion of temporary work is being reduced. The market is quickly returning to pre-2021 levels.
Besides the above factor, inflation pressures are now becoming less far-reaching, according to basic assumptions. So there is more breathing room for the Fed. However, expressing this publicly would mean an explosion in the bond markets. The best-case scenario for the Fed, for now, is still ‘fear’ and ‘keeping rates higher for longer’. This is not the best kept secret of course, and over time the markets will bounce back.
How Will Bitcoin and Ethereum Respond After the FOMC?
The general market expects the CPI to fall to 3% in 2023. This could mean the rise of digital assets. However, there is a possibility of volatility right after the FOMC.
The best-case scenario for Bitcoin post-FOMC is a retest of $22,400 before surging above $25,000 and continuing the upward move. However, BTC’s ongoing rally since January is currently overheating and more corrections should follow the asset. A bearish divergence is forming between the RSI and BTC (yellow dotted line), which gives another signal. Worst-case scenario would mean Bitcoin falling into the $20000-21250 range before moving forward again.
Ethereum The situation is more or less the same for. The key resistance is ominous at $1655, but once the altcoin crosses this range it will be a routine rally to $1800, then above $2000.
In general, bulls will come for Bitcoin and Ethereum as long as no other external factors disrupt the markets.