The next FOMC will set the stage for Bitcoin and Crypto
The Bitcoin and crypto market may be headed for another sideways trend until March 22.
QCP Capital, a leading digital asset trading company in Asia based in Singapore, has launched a new market analysis related to the current macroeconomic environment, calling the next Federal Open Market Committee (FOMC) meeting of the US Federal Reserve (Fed) on the 22nd of this month the most important of the entire year.
As the trading firm explains, this week has been quiet in terms of major macro data releases. The next major economic data point will be the ADP National Employment report, a monthly report of economic data that reflects the state of non-farm private sector employment in the United States.
More important, however, is what the Fed has let slip in its speeches lately. Fed officials have consistently talked about a prolonged rate hike, and some have even commented on the difficulty of achieving a soft landing.
Therefore, according to QCP, the March 22 meeting will be trend-setting for the entire year, as market participants will see where the Fed will place the terminal rate in 2023 and whether the Fed plans to cut interest rates in 2024. The trading firm is thus referring to the so-called dot plot.
4/ We believe this month’s FOMC (March 22) will set the stage for the rest of the year as market participants will be able to see where the Fed sees the terminal rate 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-member FOMC. It will show to what level and for how long the Fed’s “higher for longer” strategy can extend.
DXY remains as the main indicator for bitcoin and crypto
According to 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 reached 52.6 points. “With this, the reopening narrative in China has reawakened,” sending Bitcoin prices soaring.
However, in the longer term, QCP expects DXY to rise, which should put pressure on the prices of risky assets such as Bitcoin due to the inverted correlation. There are three reasons for this, according to the trading firm:
First, yield curves have shifted higher as markets continue to price in a higher terminal for longer.
Second, global liquidity is tightening again as the PBoC and BoJ reduce liquidity injections, and will continue to taper as central banks continue their fight against inflation.
The third reason is that the price-to-earnings (P/E) ratio of the S&P 500 is creeping up despite rising real interest rates. “A violent correction is on the books if these two measures continue to diverge,” suggests QCP Capital.
Thus, the DXY and S&P 500 are probably the biggest arguments for the return of a bear market, along with the crypto-inherent risks with Silvergate Bank.
As for the volatility curve, QCP currently observes that it is much flatter than previous sales, suggesting that the market expects a sideways trading environment in the medium term.
At these volume levels, we are positioning long vega in anticipation of some volatility as we head towards the FOMC at the end of the month.
At press time, the Bitcoin price stood at $22,346, still digesting the after-hours crash in Hong Kong.
Featured image from CCN, chart from TradingView.com
