Bitcoin remains rangebound as its fails to break above $44,000, a major resistance level in the short term. At the time of writing, the first crypto by market cap trades at $42,622 with a 1.6% loss in the daily chart.
Bitcoin seems to have been reacting to macro-economic factors driven by the U.S. Federal Reserve. The financial institution could start increasing interest rates in the coming months and start tapering its asset purchasing program.
The objective, to stop inflation from expanding throughout 2022. The metric stood at 7% year over year in the latest report, within market expectation, which led to a recovery in the price of Bitcoin as it made back from the lows at $39,600.
As the FED enters a period of media blackout leading into its monthly FOMC meeting next week, as bitbank’s analyst Yuya Hasegawa claimed, Bitcoin could see more appreciation. In addition, an increase in BTC’s hash rate and a dropped in funding rates for futures contracts across exchanges dipped into the negative ground could contribute to a short squeeze to $49,000.
In case of more downside, $40,000 remains as critical support. Bulls need to defend this area to prevent BTC’s price to crash deeper into new yearly lows.
Overall, the market seems to be expecting more downside and depreciation in Bitcoin and other cryptocurrencies due to the impact of the FED’s action. A post published by former BitMEX CEO Arthur Hayes, titled “Maelstrom”,
Therein, Hayes basically predicted a year of losses across global markets. For Bitcoin, he expects the price to drop below 2021’s floor around $30,000, and into the low $20,000. He claimed:
the pernicious effects of rising interest rates on future cash flows will likely prompt speculators and investors at the margin to dump or severely reduce their crypto holdings (…) in the very short term, this dry powder will not be able to prevent a calamitous fall in prices at the margin.
A Different Perspective For Bitcoin Amid The FED’s New Policy
Jarvis Lab’s Ben Lilly offered a different perspective than Hayes. Although they both expect the coming months to be confusing and with a lot of potential for more downside, Lilly’s conclusions suggest room for appreciation as the FED’s shift in monetary policies are implemented gradually. The analyst claimed:
(…) in terms of crypto, these rate hikes in relation to bitcoin dropping from taper talks is a market take I don’t fully agree with.
The analyst used the Eurodollar futures contract to be expired in December 2022, offered by the Chicago Mercantile Exchange (CME), as a proxy to measure investors’ expectations of interest rates. This contract already hints at marketing participants expecting as much as 0.7% by June and 1% by the end of 2022.
In other words, Lilly believes the market already expects interest rates to spike. Thus, the influence of such an event could already be price-in, leading to low demand for Bitcoin and other crypto assets, as institutions reserve maintained their “capital on the sidelines”.
As seen below, the Accumulation Trends for Bitcoin in a 7-day period indicates low participation from whales and institutions. The metric stands at around 0.14 which Lilly called “as bad as it gets” in terms of demand.
The current macro-factors are part of a two-phase cycle which Lilly believes resets and peaks over time. The cycles start with interest rates at 0 and peaks, after a “steadily bullish” trend (phase 1) off the lows of risk-assets, at the high of interest rates which could locate at around 1.5% for the coming cycle.
Since March 2021, the market has experienced phase 2 of the cycle as BTC moves in the $30,000 to $69,000 range. In that sense, Ben Lilly claimed:
(…) we’ll see drawdowns, but the macro cycle has runway (potential for appreciation) if this framework continues to repeat like it has over the last twenty years.