The Fed is preparing an inflationary move that could become a “sledgehammer” for cryptocurrencies and risk assets.
After the lowest weekly close since July, it expects another week of “massive” macro announcements.
After several days of losses following the latest US inflation data, BTC/USD has not recovered, as have altcoins and risky assets in general.
The biggest cryptocurrency has yet to turn $20,000 for convincing support, and with the start of the third full week of September, there is again a danger that this level will act as a resistance.
The bulls have something to worry about – in the coming days, the Federal Reserve will decide the next increase in the key rate, which will not only affect the market on sentiment.
Additionally, the effects of the Ethereum merger continue to emerge as refunds to creditors on the defunct Mt.Gox exchange add another potential cloud to the bitcoin price landscape.
To keep a close eye on the coming week, Cointelegraph examines five potential factors affecting the bitcoin market.
Fed rate hike under scrutiny
The main event of the week is the Fed’s decision on key interest rates.
The Fed will have to react after the consumer price index (CPI) for August came out “hotter” than expected.
That’s why the market has now fully priced a Fed funds rate hike of at least 75 basis points, and it doesn’t diminish the chances of a 100 basis point increase, according to CME’s FedWatch tool Sept.
A 100-point hike would be the Fed’s first move since the early 1980s.
Fed target rate probabilities table as of September 19, 2022. Source: CME Group
The Federal Open Market Committee (FOMC) will meet September 20-21 and will issue a statement confirming that the Fed has increased and supported the figure.
“The Fed won’t be easing anytime soon, and it’s classic human nature because we now know how wrong they went by easing too much,” Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said in a report. Interview with Kitko over the weekend.
Since the March 2020 crash, growth in risk assets has “diverged too much to one side,” he said, and it’s now “pretty clear” that a reversal is about to happen.
McGlone echoed a long-held theory about the future of cryptocurrencies, saying that the cryptocurrency will take part in a general market reset and Bitcoin will eventually come to the fore. Gold will win too, but first they will both have to suffer.
“Unfortunately, for the Fed to stop this sledgehammer, it needs to tighten up on risky assets,” he said.
A move to 100 basis points this week will accelerate the process, which now includes non-US central banks, after initially being slow to raise rates to combat inflation.
Meanwhile, the popular analytical Twitter account Games of Trades reported that the S&P 500 is at a critical time before trading on Wall Street.
“At times like these, when there is serious uncertainty in general, the crypto market will not do anything without stock clearance,” said analyst and commentator Kevin Swanson.
Spot price drops after weekly close
Last week there were headwinds for Bitcoin which led to a natural drop in Bitcoin price.
According to data from Cointelegraph Markets Pro and TradingView, the BTC/USD pair lost more than $2,000 in a single weekly candle, closing below $20,000, its lowest close since July.
Weekly candlestick chart BTC/USD (Bitstamp). Source: Trading View
The close was followed by a sharp decline as the pair dropped below $19,000.
Hourly candlestick BTC/USD (Bitstamp). Source: Trading View
The bearish trend is perhaps understandable – the Ethereum merger was a “news selling” event and, along with macro triggers, contributed to a new surge of risky assets.
Analysts are now looking at the possibility that the downtrend will continue at least until the Fed’s rate announcement.
“BTC got through the weekend, but there’s always the potential for some volatility before the close,” online analytics resource Material Indicators told Twitter followers in a September 18 post:
“Next week’s big economy and Fed announcements will cause things to escalate again.”
The accompanying chart shows the status of the Binance order book with support at around $19,800 due to the inability to sustain price action.
The previous day, Material Indicators also considered it pointless to imagine that a deeper decline could be avoided. Judging by the order book, the trading activity was still not strong enough to support the current levels.