Next FOMC Will Set The Stage For Bitcoin And Crypto
The Bitcoin and crypto market could be heading for another sideways trend by March 22nd.
Singapore-based QCP Capital, Asia’s leading digital asset trading firm, has launched a new marketplace analysis related to the current macroeconomic environment, calling the next meeting of the Federal Open Market Committee (FOMC) of the United States Federal Reserve (Fed), on the 22nd of this month, the most important of the entire year.
As the trading company explains, this week has been quiet in terms of big macro data releases. The next big economic data point will be the ADP National Employment report, a monthly economic data report that reflects the state of nonfarm private sector employment in the United States.
More important, however, is what the Fed has been letting slip in its speeches lately. Fed officials have consistently talked about a prolonged interest rate hike, with some even commenting on the difficulty of achieving a soft landing.
So, according to the QCP, the March 22 meeting will set trends for the full year as market participants will see where the Fed will place the terminal rate in 2023 and whether the Fed plans to cut rates in 2024. is thus referencing the so-called dot chart.
4/ We believe this month’s FOMC (March 22nd) will set the stage for the remainder of the year as market participants will be able to see where the Fed sees the rate terminal in 2023 and whether the Fed sees cuts in 2024.
— QCP Capital (@QCPCapital) March 3, 2023
This tool, officially called the Policy Path Chart, is published by the Fed four times a year, in March, June, September and December, after meetings of the 16 members of the FOMC. It will show how far and how long the Fed’s “higher for longer” strategy can be extended.
DXY Will Remain Leading Indicator for Bitcoin and Cryptocurrency
According to the QCP, the dollar index (DXY) will continue to lead the way for the Bitcoin and crypto market. The Dollar’s weakness earlier this week was due to China’s Manufacturing Purchasing Managers’ Index, which hit 52.6 points. “With that, the China reopening narrative has awakened,” which caused Bitcoin prices to soar.
In the longer term, however, the QCP expects the DXY to rise, which should pressure the prices of risky assets like Bitcoin due to the inverse correlation. There are three reasons for this, according to Trading:
First, yield curves have been shifting upwards as markets continually price higher at a higher end for longer.
Second, global liquidity is shrinking again as the PBoC and BoJ reduce liquidity injections and will continue to decline as central banks continue their fight against inflation.
The third reason is that the price/earnings (P/E) ratio of the S&P 500 is rising despite rising real yields. “A violent correction is in the books if these two measures continue to diverge,” suggests QCP Capital.
Thus, the DXY and S&P 500 will likely be the biggest arguments for a bear market return, along with the intrinsic crypto risks with Silvergate bank.
In terms of the volatility curve, QCP is currently seeing that it is much flatter than previous sell-offs, suggesting that the market expects a sideways trading environment in the medium term.
At these volatility levels, we are positioning vega long in anticipation of some volatility as we head into the FOMC later in the month.
At press time, Bitcoin price was at $22,346, still digesting the drop during the opening trading session in Hong Kong.
CCN Featured Image, Chart from TradingView.com