- Bitcoin (BTC, Tech/Adoption Grade “A-”) is ticking up ahead of the FOMC meeting today as the bulls are hopeful.
- Ethereum (ETH, Tech/Adoption Grade “A”) has found some support and bounced slightly off the lows made on Monday.
The entire financial world is waiting patiently for the conclusion of the Federal Open Market Committee (FOMC) meeting later today.
Worries about the Fed’s new hawkish attitude — and its plan to slow its printing presses and raise interest rates — has scared all markets. The crypto market was no exception. It was hit hard and fast since it’s still considered a risk asset class.
Over the past few years, a wave of new investors from Wall Street and the traditional markets have entered the crypto space. Unlike HODLers, however, they only see crypto as a means to make money — fiat money, that is — and still prefer their traditional investments.
So, when the overall market conditions spark increased fear, uncertainty and doubt (FUD), their knee-jerk reaction is to pull their investments out of crypto and hunker down to prepare for a hawkish Fed … adding to the downside pressure on crypto prices across the board.
Is this the only reason for the overall market trend shifting to NEUTRAL?
No.
But it is an outsized contributing factor according to on-chain data. HODL waves — a metric that measures the volume of crypto that hasn’t moved in more than six months — are at all-time highs. This suggests HODLers are not selling their coins.
If HODLers are HODLing, there should be a reduction in supply ... and subsequently an increase in demand and price, especially as adoption rates have continued to grow.
But demand hasn’t gone up. In fact, it’s dried up because most traditional investors are worrying and preparing for bearish macro conditions.
That is why today’s meeting is so important.
If the Fed comes out and maintains their previous stance — or sounds more hawkish than traders expect — things could go south quickly across all markets.
But, if it eases its position, risk markets like crypto could start to recover. Considering how oversold the crypto market is, it’s possible we could see a more rapid recovery.
This will likely be the driving narrative over the next few months. A hawkish Fed could stifle growth for most of 2022. But we won’t know the extent of the Fed’s plans just yet.
So far, the crypto market sure seems to think today’s announcement might favor the bulls. The broad market has bounced this week: Bitcoin is up about 15% from the low-water market made on Monday, and many other assets are up even more than that.
Still, BTC is on very shaky ground until it can reclaim the $42,000 level. With BTC trading near $38,000 at the time of writing, this level could be within reach if the Fed walks back its hawkishness today.
On the downside, if BTC begins to fall again, look for $30,000 to offer some support. A move below that level might take Bitcoin back down to the last bull market’s all-time high near $20,000.
If Bitcoin were to fall to that level and not immediately recover, that would spell big trouble for crypto over the rest of this year. However, this possibility is less likely, as the market is overdue for a bounce, and it seems that Monday’s lows are serving as a bottom for this dip — at least for now.
Here’s BTC in U.S. dollar terms via BITSTAMP:
Just a few months ago, it seemed like Bitcoin and Ethereum were decoupling as the ETH/BTC ratio continued to climb and ETH outperformed the No. 1 crypto for a while.
That trend appears to be ending as the market is facing large macro concerns and Ethereum is once again in the same boat as Bitcoin. Though it should be noted that ETH recovered slightly better from its Monday lows, having jumped up about 20%.
However, if those concerns dissipate and the Fed eases up on this newfound hawkish attitude, we just might see ETH continue its climb against BTC.
ETH is still very much in hot water until it retakes its own key level at $3,000 . If it can, it’ll face stiff resistance between $3,000 and $3,400. Any relief rally we see will likely just be a dead cat bounce unless ETH can reclaim that $3,400 level with confidence.
Here’s ETH in U.S. dollar terms via Coinbase Global (Nasdaq: COIN):
Notable News, Notes and Tweets
- With heightened tensions surrounding the Ukraine situation, it’s interesting timing that Russia has announced plans to embrace crypto mining.
- The International Monetary Fund (IMF) has begun to warn El Salvador of the “risks” of having Bitcoin as legal tender in the country. Who could’ve predicted they would be upset?
- Arthur Hayes, the creator of BitMEX, has a new article. If you haven’t had a chance yet, please check it out. The man is a legendary trader with plenty of insight.
What’s Next
Ultimately, the markets — both traditional and crypto — are in the hands of Fed Chair Jerome Powell right now.
The actions of the Federal Reserve will likely dictate the trajectory of 2022 for all financial markets.
The situation has become so dire and so much debt has been taken on over the last few years that even just a few rate hikes could have drastic tolls on financial markets.
That said, it does appear that the crypto market has now priced in several rate hikes, potentially four or more. There’s still a decent chance that the Fed simply won’t be able to hike rates that many times this year considering how strongly the markets reacted on just the rumor of upcoming rate hikes.
Still, regardless of how the market reacts to the FOMC meeting today — and how it reacts over the course of 2022 — these conditions are likely to drive even more people to crypto over the long term.
The mere fact that the Fed has such control over financial markets due to games, tools and tricks played with the U.S. dollar system highlights the ultimate need for sound money like Bitcoin.
It’s why Bitcoin was created in the first place.
The world needs incorruptible and immutable currency as the base for the future financial system ... and we are seeing the birth of that new system taking place right before our eyes, despite the current market conditions.
We are all still so early to Bitcoin and crypto. I hope that excites you as much as it does me.
Keep your eye on the Weiss Crypto Daily over the next few days as we break down the FOMC meeting and the market’s reaction.
And if you’re looking for more hands-on assistance in navigating this volatile market, I suggest checking out our Weiss Crypto Investor, where Juan Villaverde sends out exact “Buy”/“Sell” recommendations for your crypto portfolio ... and has a strategy to help you make money even in a sideways market.
Best,
Alex
