Hawkish Fed Drops Bitcoin to 3-Month Low, Now What?

In reaction to a once again particularly hawkish Fed meeting, Bitcoin fell to its lowest level in more than 3 months. The cryptocurrency indeed marked a low last night near $18,600, a level that had not been seen since June 19.

As investors had widely anticipated, the US Federal Reserve raised the Fed Funds rate from 0.75% to 3.25%.

Knowing that the market is pricing in a fairly significant probability of a bigger rate hike of 1% (since US inflation was above expectations last week), one would have expected relief from Bitcoin and therefore a rebound.

Why and how the Fed drove Bitcoin down

But beyond the widely anticipated rate decision, elements other than the magnitude of the rate hike have come, prompting traders to forecast a larger monetary policy tightening than previously estimated, hence the reaction BTC/USD bearish.

It should be noted in particular that the dot-plot graph which describes the forecasts of the members of the Fed in terms of rates was also updated at the time of the meeting last night. However, this highly watched document showed that the consensus within the FOMC provides for a key rate of 4.4% by the end of the year.

Therefore, these forecasts show that the Fed should raise rates by another 1.25% by the end of the year. Since only two Fed meetings separate us from the end of the year, the most likely is that the central bank will again hike rates by 75 basis points at its next meeting and then by 50 basis points at the December meeting.

Moreover, Fed Chairman Jerome Powell’s speech after the rating announcement was also hawkish, as he assured that the tightening of monetary policy will remain aggressive, and expressed his concern about persistent inflation.

Note that the tightening of monetary policy generally reduces the appetite for risk in the financial markets, and generates risks of a recession. This encourages investors to turn away from speculative assets such as Bitcoin and cryptocurrencies in general.

It is this reasoning that explains the fact that Fed policy is the main factor behind Bitcoin’s decline in recent months.

Hard to see positive for BTC/USD, from a technical perspective

From a crypto technical analysis perspective, Bitcoin’s fall yesterday reinforces the negative profile of the cryptocurrency, which continues to decline within a falling wedge, as seen in the H4 chart below:

The lower boundary of this channel is currently around $17,600, a threshold whose importance is reinforced by the fact that it is also the 2022 trough. It is therefore an ideal bearish target for traders who believe that BTC/USD will continue to fall.

On the upside, it is from the key psychological threshold of $20,000 that Bitcoin’s profile would begin to improve in the short term. In this case, the next bullish objective could be the upper limit of the descending wedge mentioned above, currently at around $21,700.


One thought on “Hawkish Fed Drops Bitcoin to 3-Month Low, Now What?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s