Bitcoin Analysis: How To Prepare For Today’s FOMC Meeting
03 Mai 2023 - 9:10AM
NEWSBTC
Today’s interest rate decision by the U.S. Federal Reserve (Fed)
and the following press conference by the Federal Open Market
Committee (FOMC) could make up for this year’s most important day
so far for the Bitcoin price. In March, the Fed had raised the
benchmark interest rate by another 0.25 basis points (bps). At the
time, central bankers were leaving their next steps open. Fed
Chairman Jerome Powell clarified that further rate hikes “may be
appropriate” and that the decision “will be data dependent.” 25 Bps
Expected Despite Strong Headwinds Most recently, the Consumer Price
Index (CPI) surprised on the upside with an annualized decline to
5.0% (from 6.0%), but core inflation is proving to be very sticky.
Nevertheless, the market expects today’s 0.25 basis point rate hike
to be the last in this cycle. According to the CME’s FedWatch tool,
89% of market participants believe the Fed will make this move
today, despite facing strong headwinds from U.S. politics
yesterday. Democratic-led members of Congress called on the Fed to
pause rate hikes. Ten senators and representatives, led by Senator
Elizabeth Warren, expressed concern about the Fed’s monetary policy
strategy in a letter to Fed Chairman Jerome Powell on Monday and
urged avoiding “a recession that kills jobs and crushes small
businesses.” Also arguing against continued aggressive policy is
the fact that the fastest rate hike cycle in Fed history has caused
deep cracks in the U.S. banking system. Following the fall of
Silicon Valley Bank, Signature Bank and First Republic Bank,
numerous other regional U.S. banks plunged deep into negative
territory yesterday. US Regional Bank Stock This Year: 1.
HomeStreet, $HMST: -75%2. PacWest, $PACW: -71%3. Metropolitan Bank,
$MCB: -64%4. Zions Bank, $ZION: -51%5. Western Alliance, $WAL:
-47%6. KeyCorp, $KEY: -45%7. HarborOne, $HONE: -39%8. Valley
National, $VLY: -35%9. Truist, $TFC: -33%… — The Kobeissi Letter
(@KobeissiLetter) May 2, 2023 In addition, the recent collapse of
First Republic Bank exacerbates the credit crunch: a decline in
bank lending due to a sudden tightening of bank deposits. As the AP
reported yesterday, assets are worth less than liabilities at half
of the 4,800 U.S. banks. Related Reading: Bitcoin Market Update: Up
Or Down, What’s Next As Fed Rate Hike Looms? “It’s spooky.
Thousands of banks are underwater,” said Professor Amit Seru, a
banking expert at Stanford University. “We shouldn’t pretend this
is just about Silicon Valley Bank and First Republic. A large part
of the U.S. banking system is potentially insolvent.” That’s
another reason the market continues to call Powell’s bluff.
According to CME FedWatch, the market believes the Fed will not
only pause after today’s meeting, but also cut rates twice this
year – unlike the Fed, which in its latest dot plot forecasts
a terminal rate of 5.0% by the end of the year. Bitcoin Analysis:
How to Prepare A 25 basis point rate hike is already priced in by
the market and is not expected to hammer the Bitcoin price. When
the interest rate decision is announced at 2 p.m. EST (8 p.m. CET),
no major volatility should be expected, which will be coming with
the press conference. The only exception is a big surprise: an
early pause. However, this scenario seems extremely unlikely. Due
to this, all eyes will be on the FOMC press conference at 2:30 pm
EST (8:30 pm CET). Probably the most important statement from
Powell will be whether the Fed will pause interest rates in June.
If so, the Bitcoin market is expected to immediately react bullish.
If Powell denies this statement or states that it depends on the
data, it would be bearish. Related Reading: Bitcoin Price Faces
Hurdle And Remains At Risk of Additional Losses Another focus will
be on the question of interest rate cuts later this year.
Especially if Powell emphasizes that the Fed will keep interest
rates high until 2024, it would be rather bearish for Bitcoin. The
question will be whether Powell or the market is wrong, and who
will fold first. Other important statements are expected on the US
banking crisis and expectations of a soft landing (recession). Both
of these topics have the potential to move the Bitcoin price.
Meanwhile, traders should be careful with the initial move, as it
often initially goes in the wrong direction. As analyst Ted
(@tedtalksmacro) explained, hedges are typically unwound shortly
after the announcement. Usually there is a short impulse up/down
when these positions are unwound, and then “real” move occurs when
the positions are bought back, which is why the price then
falls/rises again. Once the short interest is removed, the spot
market takes control of the actual move. “This is where you want to
follow what spot CVDs are doing, and if it’s different from how
perps are moving. […] following the press conference we should be
able to gauge things more clearly as hedges will be unwound,”
advises Ted. At press time, the Bitcoin price stood at $28,623.
Featured image from iStock, chart from TradingView.com
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