Bitcoin has been trading sideways ahead of the Federal Reserve (Fed) FOMC statement. The FOMC projections are also expected to be released following the rate statement.
This is the first anticipated rate hike from the Fed since 2018. The market initially expected +0.50% (50bps) hike in today's monetary policy meeting.
Due to the war in Europe between Russia and Ukraine, the expectations were reduced to a mere 25bps. Inflation is pressuring the Fed to raise rates.
source: tradingeconomics
The sharp rise in the US Consumer Price Index (CPI) is forcing the Fed to act in an effort to curb inflation. Based on historic monetary policy meetings, cryptocurrencies tend to react to a shift in monetary policies.
Bitcoin is at the center of attention in the upcoming Fed monetary policy meeting. The correlation between BTCUSD and the S&P 500 was 0.01 between 2017 and 2019.
In 2020, 2021 the SP500, BTC correlation increased to 0.36. If the correlation is 1, it means Bitcoin and the US index are perfectly aligned with each other.
source: tradingview, BTCUSD/SP500 correlation, daily chart
At the beginning of 2022, Bitcoin correlation to the SP500 was 0.3. Due to the correlation, there is a fair possibility BTCUSD will react to the Fed monetary policy, in tandem with the SP500.
As the rate hike itself is already priced-in, what may affect BTC price are the economic projections and the accompanying rate statement.
The market would like to reaffirm the pace of future rate hikes. Employment figures have been strong.
source: CME
At the time of this writing there is a 96.3% chance for a rate hike of at least 25bps in today's Federal Reserve meeting. As it is fully priced-in. the rate hike itself may not be the reason for a significant reaction but the accompanying rate statement and projections.
In the press conference, Fed Jerome Powell is likely to be asked whether the conflict between Russia and Ukraine (including the sanctions) will affect future monetary policies.
Moreover, Powell may be asked regarding the regulatory framework for cryptocurrencies following Biden's executive order. His answer may affect the top cryptocurrencies.
Future Rate Hikes Odds
Although the current expectations are for multiple rate hikes in 2022, the risk aversion stemming from Russia may alter the outlook. While it may not necessarily be mentioned in today's meeting, I would expect the Fed to cool the market's expectations for rapid rate hikes.
If Powell tries to cool the pace of future interest rate hikes today, it may reflect at the pricing-in for 4 May meeting. At the time of this writing, the odds for a rate hike of 50 to 75bps in May is 47.6%, a 75 to 100bps interest rate hike in May's meeting is 50.5%.
Bitcoin is likely to react in accordance to the outcome of the meeting.
Is It Time to Buy or Sell Bitcoin?
Earlier today a bullish spike took place in Bitcoin, sending the price from 39,000 to 41,600 (approx.). The market quickly pared the gains, sending the price back towards 39,000.
BTCUSD 15min Chart
Simar price movements are common in the Foreign Exchange (Forex) market. Stop hunting is among the reasons for this phenomena. It is challenging to determine whether stop hunting was the cause for the spike in Bitcoin.
Due to the short-lived spike, short BTC positions were liquidated. Out of the $47.3 million that was liquidated, $38.82 shorts evaporated on Okex.
source: coinglass
Based on my experience with cryptos, traders that were holding long positions were caught in the spike. Other traders that anticipated a breakout via intraday time frames joined the 'rally' and were later liquidated as the price corrected lower.
After assessing Bitcoin (BTCUSD) the price is contained in a range.
BTCUSD 4hr Chart
The recent gains that are taking place in Bitcoin are often seen following a significant retracement. In this case, it is the shadow of the bullish spike that took place earlier today. However, it offers little indication as to where Bitcoin may be heading.
On shorter time frames BTCUSD is facing some resistance, which may drive the price lower prior to the Fed monetary policy meeting. Based solely on technical analysis, a whipsaw reaction may take place where $38,700 may be reached.
Breaking above $41,600 may extend BTC gains towards $45,000.
