Bitcoin Is About To Test The Adage Don’t Fight The Fed

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(Bloomberg) – Cryptocurrencies are set to lose momentum in the coming days, starting with the Federal Reserve’s policy decision on Wednesday in which central bank officials are expected to hike rates by a quarter point. percentage.

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That’s according to an analysis by Arcane Research, based on the minute-by-minute rolling volatility of Bitcoin, the largest digital token by market value. The company has analyzed previous Federal Open Market Committee press conferences, finding that while bitcoin price developments over those periods have been less volatile since the central bank began raising rates in early March. , the Fed’s trajectory remains uncertain.

The market is too optimistic about a quick pivot from the Fed, wrote Vetle Lunde, principal analyst at Arcane Research. The combination of slowing momentum, strong technical resistance and expectations of a hawkish FOMC leads me to expect a lackluster February in the market.

The warning echoes the old adage not to fight the Fed, coined in 1970 by the late investor Martin Zweig, who pointed to the strong correlation between Fed policy and the stock market.

Bitcoin rose 2.1% on Tuesday and traded at $23,108 as of 3:20 p.m. in New York. Other tokens also gained, with an index of the 100 largest coins adding around 0.2%. The rebound from last year’s deep rout is part of a broader revival in risk appetite on expectations that central banks will slow interest rate hikes and perhaps even cut costs borrowing later this year as very high inflation moderates.

In the short term, I’m bearish as the strength of the crypto market appears overdone on several metrics, Lunde said, adding that the consistent short cuts seen over the month wiped out huge amounts of leverage. This, he said, drained the token of fuel to rally more. Looking to the long term, I am firmly optimistic as BTC recovers to pre-FTX trauma levels.

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Bitcoin has traded in a tight range over the past two weeks after hitting its highest level since August earlier in January as economic data continued to show moderating inflation and the Fed eased its pace. aggressive monetary tightening. For January, the coin jumped nearly 40% to its strongest month since October 2021 amid renewed investor enthusiasm and consensus expectation of a Fed pause.

US equities, meanwhile, are also on track for a monthly gain. All eyes will be on Fed Chairman Jerome Powell, who has repeatedly pushed back on hopes of a rate cut later this year, unlike some central bank officials who have expressed the possibility of pausing rate hikes. rate after the March meeting.

The market is behaving as if Fed easing is already upon us. In other words, it tells us that risk-on is back. Not yet in a massive way, but growing confidence that the peak in US rates is near and that sentiment will continue to improve encourages investors to take more risk in order to beat the rush for higher yields, wrote Noelle Acheson , author of the Crypto Is Macro Now Newsletter. In this case, BTC is trading as a high risk macro asset, not what true believers are hoping for, and not what (in my opinion) we will see later in the year.

The 14-day relative strength index of the coins is now at 66. A reading of 30 or lower is normally interpreted as an indication of an oversold stock, while 70 or higher signifies an overbought one. Generally, investors tend to avoid overbought stocks, although such conditions have generally been bullish for Bitcoin.

Despite this year’s gains for cryptos, tokens remain extremely depressed compared to where they were trading at the peak of the 2021 bull run, when Bitcoin hit nearly $69,000. A LendingTree survey found that of the 28% of Americans who owned some form of digital asset, almost 40% sold it at a loss.

Last year’s experience showed how risk works both ways, it can increase appetite and lower it, said Kara Murphy, chief investment officer at Kestra Investment Management.

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