Rally Slows Ahead of Federal Reserve Meeting

by Alex Benfield
By Alex Benfield

For the past few days, crypto prices have retreated slightly from their rally highs, as we head into this afternoon's Federal Open Market Committee meeting.

The minutes should give insight into whether the Federal Reserve will begin to slow down the interest rate hikes … or if it'll continue its attempt to slow down economic activity and depress demand.

Since the last rate hike, markets have been under the impression that the worst of inflation is behind us and that rate hikes will start to slow in the coming months. In turn, equities markets have boomed and made a major recovery off the June lows.

This current rally has lasted longer than the usual. The flip side is that it's been dull compared to earlier rallies and recoveries.

The excitement and thrill of the crypto bulls doesn't seem to be there right now, but that could be coming soon. There are reasons to be both bullish and bearish in the medium term.

The Case for the Bulls

The Ethereum (ETH, Tech/Adoption Grade "A-") Merge is coming Sept. 15-16 and will usher in a new dawn for the second biggest blockchain. It'll mark, perhaps, the biggest tech upgrade in crypto history and pave the way for more astounding tech developments down the road.

The switch to proof-of-stake could usher in a ton of money that has been waiting for an environmental, social and governance--compliant cryptocurrency to invest in. Most importantly, the ETH issuance rate will drop dramatically to just 0.4% per year, cutting down on the available supply of ETH right at a time when there are more reasons than ever to own it.

Additionally, there is some reason to believe the Fed will pivot before the end of the year. This will be an immediate bull signal for Bitcoin (BTC, Tech/Adoption Grade "B+") and the rest of the crypto market.

Crypto demand has simply been suppressed in 2022 due to investors' worries caused by the Fed. When the Fed pivots, we expect a flood of capital into cryptocurrencies as investors search for any asset class that could offer positive returns during what could be some troubling times in the near future.

Case for the Bears

This current rally has gone on for quite some time and could be a bit overextended. If this rally is close to topping out, then the next few weeks or months might not be that bright for this space.

This would cause a battle of narratives. On the one hand, the rally coming to a close would usually spur selling. But with such a big event coming up, the Merge could entice investors to stay in or even load up.

Another consideration to take into account is the Fed. Rather than backing off rate hikes should the worse be behind us, the Fed may get more aggressive with their hikes in the face of an economy that's seemingly able to withstand that kind of pressure.

Throw in the fact that we can't yet confirm that inflation is truly coming down and hasn't just stalled, and this Fed might have a tough decision in the months to come.

Many have begun to note the signs of a looming recession — or even worse, a depression — as the U.S. has just seen two straight quarters of a decline in GDP. If the Fed fights too hard on inflation, it just might trigger a recession and cause a spike in unemployment.

The only thing worse than high inflation is high inflation and no job or steady income. This is the scenario of max pain for America let's hope this doesn't happen.

But until the meeting minutes are released, all we can do is speculate. We'll hopefully have more insight shortly.

In the meantime, let's take a look at Bitcoin and see how the past few days have affected the ongoing rally. You can see in the chart below that it's had a tough time establishing itself above that $24,000 resistance level and has fallen below the mark the past two days.

 

BTC has also lost the orange trendline that's acted as support over the past month. It's now sitting on its moving average. If BTC can manage to bounce off the moving average and get itself back above $24,000, then this rally might still have some life left.

If BTC fails to do that in the next couple of days, then this rally is likely over for Bitcoin.

Ethereum is in a bit of a better position, although the past few days have been rough for the second-biggest cryptocurrency as well. ETH failed to claim $2,000 as support once again and is now heading for $1,800.

We're looking for ETH to bounce at that level and retest $2,000 before heading to the upper bound of the area of resistance. If ETH breaks below $1,800 and its moving average, then its rally might be coming to an end, as well.

Here's ETH in U.S. dollar terms via Coinbase (COIN):

 

What's Next

The crypto market — and most investment markets, really — is at an inflection point. Will prices move higher in the coming days … or is this the last gasp from the bulls before things get truly ugly?

We can't know for sure. But listening to what the Fed has to say should give us some insight as to how things play out. Things won't truly change until we see what the Fed actually does in the coming months.

Stay tuned in to Weiss Crypto Daily to follow along as markets make their decisions on how the rest of 2022 is likely to play out … and what you can do to protect your investments and potentially profit.

Best,

Alex

About the Crypto Analyst

Alex has been actively researching and investing in cryptocurrencies since 2017. He contributes research and reports to several Weiss crypto publications, with a primary focus on helping to create crypto trading strategies.

Crypto
See All »
A
B
ZRX $0.967934
B
B
B
SOL $192.22
B
AAVE $128.12
B
B
ADA $0.657022
B
CRO $0.157942
B
ETH $3,576.84
B
B
B
MKR $3,630.88
B
B
XLM $0.140377
B
UNI $12.69
Crypto Ratings
Loading...
Weiss Ratings