Markets don’t believe Powell – see Bitcoin’s likely move in February

The FOMC meeting on February 1 was perhaps the most anticipated event on the investment landscape. This includes the cryptocurrency market, so there are high expectations, especially among Bitcoin investors and enthusiasts.

The big question of the day was whether and how much the Federal Reserve would continue to raise interest rates. Fed Chairman Jerome Powell announced at the FOMC meeting that the interest rate of the Federal Fund will increase by 25 basis points. This was within the expectations of investors and contributed to a more bullish outlook for Bitcoin thus far.

The impact of the FOMC results on Bitcoin and the broader cryptocurrency market

Satoshi Nakamoto’s vision may have been to create a new financial system that would break away from the traditional financial system. Fast forward to today and it is clear that there is a significant connection between the crypto market and traditional finance. This is largely due to how investors react to economic changes.

This is the second time in a row that the Fed has increased the discount rate by 25 BPS. Bitcoin reacted positively to the news with a slight uptick in the hours after the new rate hike was announced.

It even managed to raise the price level above $24,000 in a short period of time. The total cryptocurrency market size is up 4.5% at the time of writing.

The rising result confirms that investors are optimistic about the Fed’s decision. This is largely because keeping the rate on hold confirms that quantitative tightening is putting the Fed on the right track toward economic normalcy.

This result could lead to a higher forecast for February, as we saw in January. However, this will depend on whether there will be significant demand to sustain the price increase.

The last few hours since the FOMC meeting have led to a resurgence in demand. The number of daily active addresses has increased significantly, which confirms the flow of buyers to the retail segment. BTC’s MVRV ratio has risen consistently over the past three days, confirming significant demand during this period.

Source: Sentiment

The risk is not over yet

The Fed aims to keep quantitative easing measures in reserve until June. That means it has a deadline to reach its target rate of 2%. So, if there is a risk of missing the target, it may have to raise rates further over the next three months.

Powell said during the FOMC meeting that the Fed will continue to reduce its balance sheet. So a limited position may be on the table for the next few months.

Another interest rate hike above current levels could push the cryptocurrency market into a tight corner. This would become another bearish scenario that could push Bitcoin below $20,000.

Therefore, the next FOMC meeting in March will carry more weight in terms of impact on the market. Powell confirmed that the Fed is ready to raise interest rates further if needed.

There is also a chance that the risk of a potentially higher rate hike in March will weigh on investor sentiment this month. Perhaps market observations can already point to such a conclusion.

For example, over the past 24 hours, bitcoin exchange inflows have remained significantly higher than outflows.

Bitcoin exchange streams

Source: Glassnode

Higher currency inflows could indicate that more investors are moving BTC to exchanges and possibly preparing to sell. If that happens, February may not be as bullish as January.

Is Bitcoin still the right horse for the 2023 rally?

There is no doubt that altcoins tend to follow in the footsteps of Bitcoin. However, a more open-minded approach may benefit those seeking better opportunities.

This is already showing in some assets in the last few days. For example, Bitcoin has gained about 6.77% in the last three days. At the same time, Cardano’s ADA rose to 11% over the same period, outperforming BTC.

Bitcoin price action

Source: TradingView

How much is 1,10,100 BTC today?

There is also the fact that ADA still has more ground to cover than BTC until it reaches its previous ATH. However, a more diverse approach would be beneficial, as there is still much uncertainty ahead.

The result

According to Powell’s comments, the Fed can reverse its current direction if necessary. This means there is still a risk that FUD will flow back into the market over the next two or three months.

Nevertheless, the Fed’s fight against inflation is going well, so the long-term outlook still favors Bitcoin and the overall market recovery.

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