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

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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 (Wednesday AEDT) and was trading near US$23,000 as of 8:30 a.m. AEDT.

Risk awakening

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.

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.

Powell’s analysis

US equities also posted 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 peak US rates are near, 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 securities, although these 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 US$69,000.

A LendingTree survey found that of the 28% of Americans who owned some form of digital asset, nearly 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.

Bloomberg

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