Bitcoin records a 7% drop in the last week as yesterday’s Federal Open Market Committee (FOMC) hints at a more aggressive U.S. Federal Reserve. As investors reacted to a tougher monetary policy, selling pressure rejected BTC’s price from the mid area around its current levels.
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At the time of writing, Bitcoin trades at $43,400 with a 3% loss in 24-hours and with potential to re-test more areas of support.
Investment firm Cumberland believes the FOMC minutes were directly responsible for the BTC’s bearish price action. Part of a “broader risk-off move”, the announcement affected several sectors across the macro markets.
Bitcoin’s recent weeks relief rally was triggered by the FED as well. Investors were expecting an increase in interest rates at around 25 bps. The financial institution announced this increase back in March meeting expectations.
This provided more clarity to market participants. However, the FED turned more aggressive on its approach as a result of a persistent inflation.
In that sense, the financial institution has forced market participants to adjust their views potentially shaking speculators from their positions. Cumberland said:
At this point, one has to wonder whether the Brainard/FOMC commentary which triggered this move represents new & meaningful information that should be factored into the market in the form of lower prices, or if instead this selloff is really just a classic case of weak hands rushing for the exits in a crowded trade.
The investment firm believes the second option is more likely. Therefore, they claimed the current downside price action could offer long-term traders with a buy the dip opportunity.
At these levels, as Bitcoin moves in a tight range between $48,000 and $37,000, without new macro-factors to oppose a rally, the market could offer a high reward/low risk scenario. The investment firm added:
(…) If we approach those lows in the absence of a fresh geopolitical catastrophe, risk/reward associated with adding more length seems attractive.
The Macro Outlook And Its Potential Impact On Bitcoin
A Senior Economist at Natixis, a global financial services company, claimed the FED has accelerated its monetary tightening. This could lead the institution to sell part of their balance sheet and keep the price of risk-on assets down.
3 shocks hitting Asia economies:
a) Tightening of financial conditions, led by the Fed hike of both the price of the USD, leading to not just direct credit shocks but also relative & risk aversion or deleveraging
b) China zero Covid (demand)
c) Supply shocks— Trinh (@Trinhnomics) April 7, 2022
The U.S. FED announcement combined with a slowdown in China’s economy, the analyst claimed. The Asian giant has begun to tighten its monetary policy which indicates market participants could become more risk adverse and to an overall deleveraging.
However, this situation could become unsustainable in the short term and could force China to lose its monetary policy. The region currently faces economic weakness, the analyst said.
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This could allow for risk-on asset like Bitcoin to reclaim previous highs. The analyst added:
Let me put this another way, with external financial conditions tightening, led by the Fed tightening aggressively in May & more, the question is whether Asian economies can follow & if they can’t follow due to economic weakness, then there’s policy divergence & asset implications.