Bitcoin records a 7% drop in the last week as yesterday’s Federal Open Market Committee (FOMC) hints at a more aggressive U.S. Federal Reserve. As investors reacted to a tougher monetary policy, selling pressure rejected BTC’s price from the mid area around its current levels.
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Bitcoin traded at $43,400 at the time this is written. This represents a 3% loss over 24-hours, with potential to test more areas for support.
Cumberland is an investment firm believes the FOMC minutes were directly responsible for the BTC’s bearish price action. Part of a “broader risk-off move”, the announcement affected several sectors across the macro markets.
Bitcoin’s recent weeks relief rally was triggered by the FED as well. Investors expected an interest rate increase of around 25 basis points. In March, the financial institution met investor expectations and announced an increase.
Market participants were able to see this clearly. Due to persistent inflation, however, FED became more aggressive in its approach.
The financial institution forced market participants, potentially changing speculators’ views. Cumberland claimed:
At this point, one has to wonder whether the Brainard/FOMC commentary which triggered this move represents new & meaningful information that should be factored into the market in the form of lower prices, or if instead this selloff is really just a classic case of weak hands rushing for the exits in a crowded trade.
According to the investment company, they believe that the second possibility is more probable. They believe that the downside price action is likely to offer traders long-term a buy-the-dip opportunity.
This level is where Bitcoin could be considered high-reward/low-risk, with Bitcoin moving in an extremely tight range of $48,000 to $37,000. This was added by the investment firm:
(…) If we approach those lows in the absence of a fresh geopolitical catastrophe, risk/reward associated with adding more length seems attractive.
The Macro Outlook and Its Potential Impact on Bitcoin
Natixis’ Senior Economist claimed that the FED had accelerated its monetary tightening. It could cause the institution to reduce their risk-on asset prices and sell a part of its balance.
3 shocks hitting Asia economies:
a) Tightening of financial conditions, led by the Fed hike of both the price of the USD, leading to not just direct credit shocks but also relative & risk aversion or deleveraging
b) China zero Covid (demand)
c) Supply shocks— Trinh (@Trinhnomics) April 7, 2022
The U.S. FED announcement combined with a slowdown in China’s economy, the analyst claimed. This Asian giant is tightening its monetary policy, which could lead to market participants becoming more cautious and deleveraging.
This situation, however, could prove unsustainable over the short-term and force China to abandon its monetary policies. Analysts believe that the region is currently experiencing economic weakness.
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The analyst could use this to help Bitcoin, a risky asset that can reclaim its previous highs. Analyst added:
Let me put this another way, with external financial conditions tightening, led by the Fed tightening aggressively in May & more, the question is whether Asian economies can follow & if they can’t follow due to economic weakness, then there’s policy divergence & asset implications.