Bitcoin is hanging below the $21,000 resistance and may be ready for another phase in the coming days. The cryptocurrency broke out of a range last week, trending higher and reclaiming previously lost territory.
At the time of writing, Bitcoin (BTC) is trading at $20,300 with sideways movement over the past 24 hours and a 6% gain over the past day. With the US publishing new economic data, this week may bring more volatility in the market.
Fed Pivot Takes Shape, Bitcoin Likely to Benefit
According to a recent market update from trading firm QCP Capital, the crypto market enjoyed “much-needed positivity”. There has been a lot of speculation about the causes of the upside short time trend, but macroeconomic conditions are the most likely cause.
The US Federal Reserve (Fed) is raising interest rates to slow inflation, and this monetary policy is wreaking havoc in global markets. As a result, the US dollar has seen its highest level in 20 years, while investors take refuge in the midst of economic uncertainty.
In this environment, nothing but the US dollar flourished; There have been losses in other assets including bitcoin and gold, and currencies, particularly the euro, the Japanese yen and the British pound. In that sense, the Fed is between a sword and a tough spot.
The financial institution may continue to hike and tighten monetary conditions, but pressure from US allies and elected officials is proving daunting. According to QCP Capital, the market has begun pricing in a dovish Fed, providing support for the Fed pivot narrative.
The thesis is bullish on bitcoin and riskier assets and considers the Fed’s monetary policy changes to bring some relief to the market. The trading firm has posted a downside correction for December with the possibility of a further 75 basis points.
A New Tale to Save BTC?
The Fed’s long walk on 75 bps likely fell from 55% to 45% and could continue to decline due to internal and external pressure. Recent reports suggest that the Fed itself is facing the consequences of the current economic scenario.
The Fed is running an operating loss because it pays banks and money funds more on interest than it earns on its securities portfolio.
The central bank, which sends all surpluses to the Treasury, may create an IOU so that the loss does not affect its operations. https://t.co/1UepiR5HgZ
— Nick Timiraos (@NickTimiros) 31 October 2022
QCP Capital wrote:
Other central banks globally have already started showing laxity with the BoC increasing +50 bps (versus +75 bps expected) and the ECB easing its further guidance, suggesting They are closer to the end of their hiking cycle than expected.
However, traders should beware of excessive bullish sentiment. Bitcoin is still susceptible to macro forces in the short term, and the crypto market could react negatively to “continued encouragement from the Fed”, concluded QCP Capital.