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Bitcoin and crypto markets are rising today, despite the fact that the initial reaction to yesterday’s FOMC of the US Federal Reserve (Fed) was rather bearish. During the meeting, the price of bitcoin fell from $28,800 to $28,250 as the market reacted to Jerome Powell’s extremely aggressive comments.
The Fed chairman declined to confirm that yesterday’s rate hike was the latest in this cycle, despite numerous requests from journalists. He also stressed that there is no room in the Fed’s current scenarios for rate cuts this year. On the other hand, in its rate hike announcement, the Fed omitted earlier comments that suggested a further hike.
Bullish 👇 https://t.co/k4DiOUwl2T
— Jake Simmons (@realJakeSimmons) May 3, 2023
Why is bitcoin and cryptocurrency on the rise today?
The fact that bitcoin and the wider crypto market are rising today is likely due to the fact that, despite Powell’s best efforts, the market is expecting a reversal, i.e. a pause in rate hikes, at the next FOMC meeting on June 14.
Reason: Most FOMC participants said in March that the final rate for this tightening cycle would be between 5% and 5.25%, which is exactly where the federal funds rate came in yesterday. The CME FedWatch tool shows that the vast majority of 99.2% currently expect a pause in June.
More than 85% expect the first rate cut in September. Overall, the market currently expects at least three rate cuts (from 4.25 to 4.5 basis points) by the end of the year.
And even JP Morgan’s Davis thinks “this is definitely the end of the Fed’s hike cycle.” The representative of the largest US bank on deposits also believes that the Fed’s rate cut may occur “as early as September.”
The forecasts for Bitcoin and cryptocurrencies are extremely bullish as risky assets traditionally benefit the most from dovish monetary policy as more liquidity is pumped into the financial system. On the other hand, Bitcoin investors may have once again reacted to the deepening banking crisis in the US.
As with the collapse of Silicon Valley Bank and First Republic Bank, BTC experienced a surge yesterday as PacWest (PACW) of Los Angeles crashed by about 60% during after hours. The regional bank is rumored to be looking for a buyer and is considering other strategic options, according to Bitcoinist. Rumor has it that buying interest is low, so PacWest could be the next domino.
Further growth momentum in sight?
Further growth can be provided today by the dollar index (DXY) against the background of the decision of the European Central Bank (ECB) on the interest rate. As analyst Ted (@tedtalksmacro) explained, a strong move in DXY is expected today:
Increase by 50 bp. p. and the dollar index should end the day significantly lower. Up 25 pips and I’m expecting a slight bounce.
DXY continued to fall yesterday after the FOMC meeting and is currently still just above the multi-month support at 101. If the level breaks, DXY could face a deeper drop and Bitcoin could benefit greatly due to its inverse correlation.
A move towards $30,000 could be next if support at $28,800 continues. However, sweep first if open interest seems necessary as long positions in the futures market heat up again (during a sideways move).
Bitcoin Open Interest Composite Chart | Source: Coinalyze
At the time of publication, the price of Bitcoin was $29,086.
Bitcoin price, 2-hour chart | Source: BTCUSD on TradingView.com.