 |
| By Alex Benfield |
It's been one month since the last Federal Open Market Committee (FOMC) meeting, and Bitcoin (BTC, Tech/Adoption Grade "A-") and the broad market have essentially traded flat in that time.
Now here we are again, awaiting the minutes from another meeting. Are we dovish? Hawkish?
Well, the Fed just enacted the first of several proposed rate hikes to fight rising inflation — by 25 basis points. This is the first rate hike since 2018.
We've explained multiple times now how an aggressive Federal Reserve could trigger a recession if they don't perfectly walk the very thin line between excessive interest rates or runaway inflation. It seems like it's taken this to heart by raising rates … but not as aggressively. Remember, back when the hikes were first proposed, the intended hike was 50 basis points.
All asset markets are very shaky right now as traders don't know what to expect moving forward.
More important for us is the question of how the cryptocurrency market will react.
Well, that's what most traders are trying to figure out. And while it's extremely hard to accurately predict, we expect prolonged volatility in crypto markets over the next few months.
On-chain metrics like exchange outflows show HODLers are moving their coins off exchanges in record numbers and the available supply of BTC continues to shrink. So, as the market starts to run out of sellers, the downside from this point is limited.
A bear market like we saw in 2018–2019 is unlikely. There simply aren't enough sellers to drop prices by 70%–90% like we saw back then.
And there are still ways the broad market could benefit from current macro conditions. Let's look at two:
1. Inflation. If inflation continues to rise, investors could turn toward Bitcoin and other top cryptos as hedges against inflation. This would see Bitcoin living out its store-of-value narrative.
Additionally, investors could hedge against 7%–10% inflation by farming stablecoins through decentralized finance (DeFi) protocols. There are plenty of opportunities for 10%–25% yields on stablecoins throughout different DeFi protocols.
2. Financial Freedom. The threat of burdensome regulation and flat-out censorship — like we've seen in Canada as donations to protestors were confiscated or how Russian citizens are still struggling under the burden of economic sanctions — means we could see more people across the globe utilize crypto for regular payments and money transfers as well.
Beyond the long arm of any centralized authority, true cryptos and DeFi make it possible for people to have direct custody of their assets and avoid suffering the consequences of someone else's misdeeds.
These aren't just silver linings, but real macro factors pushing new investors into crypto. That, and the fact that market fundamentals haven't changed, is why we think the market will stay NEUTRAL until the next rally.
Bitcoin remains in a range between $35,000–$45,000 with $38,000 acting as strong support and $42,000 as strong resistance over the past two weeks. Until Bitcoin can break through these levels, we'll likely see that continue.
Back to today's FOMC meeting. Since the Fed landed on a 0.25% rate hike, expressing a dovish attitude, we anticipate most markets will react positively. We wouldn't be surprised to see Bitcoin make a run toward $42,000, either.
Still, it's not likely to break out above that resistance as as traders remain uncertain at the moment.
Here's BTC in U.S. dollar terms via BITSTAMP:
Notable News, Notes and Tweets:
What's Next
Today's FOMC meeting will likely only affect the short-term direction for the crypto market. Until investors have time to digest the developing situation in Ukraine, effects from China's COVID-19 lockdowns and the attitude of the Fed, this market will remain volatile and will likely trade sideways.
Keep your eye out for the meeting minutes today. But if you miss them, don't worry … we'll have you covered here. As always, stay tuned for more.
Best,
Alex
