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As the Federal Reserve (Fed) prepares to announce its interest rate decision, Material Indicators, a cryptocurrency market research and analytics firm, is keeping a close eye on Bitcoin (BTC) liquidity movements. FireCharts, a popular charting platform, tracks liquidity movements on Binance’s BTC/USDT order book. Their observations led them to believe that the recent fall in the price of bitcoin could be prolonged.
Liquidity refers to the amount of Bitcoin available for trading at a given price level. When there is a lot of liquidity at a certain price level, traders can easily buy or sell bitcoin at that price without significantly affecting the market. However, low liquidity at a certain price level can lead to spikes in volatility as traders try to buy or sell an asset.
Will Bitcoin Face Another Drop?
FireCharts analysis by Material Indicator shows that liquidity in the Bitcoin order book is ahead of the Federal Reserve’s decision, indicating that traders are bracing for potential market volatility. This could lead to a further fall in prices if liquidity declines.
Liquidity of BTC in Firecharts. Source: Material indicators on Twitter.
In addition to the above, according to Kaiko, a leading cryptocurrency market data provider, liquidity in bitcoin and ethereum continues to deteriorate, with market depth for both cryptocurrencies nearing yearly lows, which could have major implications for bulls as low liquidity could lead to heightened volatility. and price instability.
At the time of writing, the price of Bitcoin is $28,300, which is down 1.4% in the last 24 hours. Despite recent news of more bank failures that briefly pushed the price above $29,000, Bitcoin has remained within its established trading range of $27,800 to $28,600. The attempt to break the $29,000 mark was unsuccessful and the price has since returned to its current level.
The market remains on the move as investors monitor current price movements, waiting for a clear direction to emerge after the meeting of the Federal Open Market Committee. But will this lead to a bigger pullback or will the market react positively to the news?
BTC braces for the potential impact of the Federal Reserve’s rate hike
The Federal Reserve’s latest jobs and wages measures suggest more rate hikes could be on the horizon. This came after a key indicator of labor costs for the first quarter was higher than expected. One of the Fed’s preferred measures of inflation, the Personal Consumption Expenditure Index (PCE), remains stubbornly high.
In addition, according to the latest report from Bitfinex, the leading cryptocurrency exchange, labor costs for the first quarter were higher than expected, indicating that wages are growing faster than expected. This could lead to higher inflation as companies can pass on higher labor costs to consumers through higher prices.
This suggests that the Federal Reserve may need to raise interest rates to manage inflation and maintain price stability. The Fed has already signaled it could raise rates in May, and these latest jobs and wages measures underpin that decision.
The implications of the rate hike are of great importance for financial markets, including the cryptocurrency market. A rate hike could increase volatility and uncertainty as investors adjust their expectations for future economic growth and earnings. However, it could also lead to a stronger dollar and increased demand for safe-haven assets such as gold and bitcoin.
Slight decline in BTC on the 1-day chart. Source: BTCUSDT on TradingView.com.
Featured image from iStock, chart from TradingView.com