The Bitcoin and crypto markets are up 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 Bitcoin price dropped from $28,800 to $28,250 as the market reacted to the extremely hawkish comments made by Jerome Powell.
The Fed Chairman avoided confirming that yesterday’s rate hike was the last one in this cycle, despite multiple requests from journalists. He also stressed that there is no room for rate cuts this year in the Fed’s current scenarios. On the other hand, in its rate hike statement, the Fed omitted the earlier remarks that announced further hikes.
Bullish https://t.co/k4DiOUwl2T
— Jake Simmons (@realJakeSimmons) May 3, 2023
The fact that Bitcoin and the broader crypto market are rising today is likely due to the fact that despite all of Powell’s efforts, the market is expecting a pivot, that is, a pause in rate hikes at the next FOMC meeting on June 14.
The reason: In March, the majority of FOMC participants said that the final rate for this tightening cycle would be between 5% and 5.25%, which is exactly where the fed funds rate arrived yesterday. The CME’s FedWatch tool shows that an overwhelming 99.2% currently expect a pause in June.
More than 85% expect the first rate cut as early as September. In total, the market currently expects at least three rate cuts (to 4.25 to 4.5 basis points) by year-end.
And even JP Morgan’s Davis believes that “this is definitely the end of the hiking cycle for the Fed.” The representative of the largest U.S. bank by deposits also believes a Fed rate cut could come “as early as September.”
The projections are extremely bullish for Bitcoin and crypto, as risk assets traditionally benefit the most from a 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 saw a spike yesterday as Los Angeles-based PacWest (PACW) crashed by around 60% in after-hours trading. The regional bank is rumored to be looking for a buyer and considering other strategic options, Bitcoinist reported. Rumor has it that there is little buying interest, so PacWest could be the next domino.
Further upside could be provided today by the Dollar Index (DXY) on the back of the European Central Bank (ECB) rate decision. As analyst Ted (@tedtalksmacro) explained, the DXY is expected to make a strong move today:
50 bps hike and dollar index should finish the day much lower.
25 bps hike and I’d expect a small bounce.
The DXY continued to fall yesterday after the FOMC meeting and is currently still only just above the multi-month support at 101. If the level breaks, the DXY could face a deeper plunge, Bitcoin could benefit heavily due to its inverse correlation.
A move towards $30,000 could be next if the support at $28,800 holds. However, first a sweep if the open interest seems necessary as long positions on the futures market are once again heating up (during a sideways movement).
At press time, the Bitcoin price stood at $29,086.
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