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| By Alex Benfield |
After the Federal Open Market Committee meeting in June, you might have thought our conversations about Jerome Powell and interest rate hikes were done.
You see, the Federal Reserve’s decision to hit the pause button on interest rate hikes was a first in over a year. And back then, the crypto market felt like it could finally take a breather after being tossed and turned by Fed funds rate narratives throughout 2022.
But like a movie sequel, the plot thickens. Currently, we're seeing signs that point toward another uptick of 25 basis points in the Fed funds rate.
So, it appears Mr. Powell might play party pooper for the crypto bulls once again.
Now, let’s rewind and reexamine the semantics of the Fed’s previous statements. Notice the terms used were “pausing rate hikes,” not “ending rate hikes.” And the infamous word “pivot” certainly was not uttered.
It seems like Powell is set on bringing inflation back under the 2% marker and is far from content with the current inflation levels, despite their gradual descent in recent months.
His goal? To keep demand in check.
In the crypto market, any significant narrative usually already has its effect calculated into market prices. You'll often hear the phrase "buy the rumor, sell the news" circulating in crypto circles, because that's generally how price action tends to pan out.
Take the launch of Ethereum (ETH, “B+”) 2.0 for instance. In the months leading up to its switch from a proof-of-work consensus mechanism to a proof-of-stake one, ETH experienced a huge price surge.
However, around the time of the actual launch and the weeks following it, the market pulled back and ETH underwent a price correction.
With today’s scenario, I’m curious if we might observe another “sell the rumor, buy the news” phenomenon.
Right now, it seems like the market has already factored in the 25 bps hike, which is reflected in the slight dip in crypto prices over the past few weeks.
Perhaps after the FOMC’s interest rate decision later today, the market will realize this rate hike won’t significantly impact the demand for cryptocurrencies. After all, the retail market — which experienced a severe shakeout last year — has yet to make a comeback.
Overall, the unfolding of these events may spark a realization that cryptocurrencies continue to hold a strong appeal, despite the fluctuations in traditional monetary policies.
Now, let’s dive into price action.
It looks like our crypto market leader, Bitcoin (BTC, “A-”), has stabilized and found support at $29,000. Although the price could move in either direction following the Fed’s announcement later today, BTC seems to have held up pretty well recently.
For now, $28,000 remains an important support level that BTC must stay above if it wants to rally again in the near future.
Looking forward, Bitcoin could be in the midst of setting a short-term low and a base for an ensuing rally toward its yearly highs once again. However, if BTC fails to climb above $31,500 in the next rally, then it has likely topped out for the year.
Regardless, we still expect the price of Bitcoin to retreat at some point later this year before the bull market kicks off in earnest in 2024.
Meanwhile, Ethereum is in a similar boat and has found some support near the $1,800 level.
If that support holds, ETH may be able to make a run past that critical $2,000 level on its way to its yearly high of $2,150 set back in April.
We’ve seen some resurgence in altcoin prices over these past few weeks, but if ETH fails to rally, we don’t expect the rest of the altcoin market to continue to climb.
Wrapping it up, remember that the journey of cryptocurrencies doesn't solely hinge on traditional monetary policies like interest rate hikes.
While these decisions can cause ripples in the market, they don't dictate the whole story of crypto's value.
In fact, the way the market reacts to these monetary moves — including the likely 25 bps hike — continues to provide insights into the evolving resilience of the crypto sector.
Times of perceived uncertainty often reveal the strength of decentralized assets. Even as we keep an eye on these macroeconomic elements, the underlying value and promise of cryptocurrencies should remain our focus.
Whether we're seeing a "sell the rumor, buy the news" event or the opposite, the revolutionary nature of the crypto world presses on, continuously creating its own narrative and reshaping traditional financial systems.
Best,
Alex
