Biggest Fed rate hike in 40 years? 5 things to know in Bitcoin this week

by · September 18, 2022

Bitcoin (BTC) faces another week of “major” macro announcements after its lowest weekly close since July.

After days of losses following the latest US inflation data, BTC/USD, like altcoins and risk assets more generally, have failed to recover.

The largest cryptocurrency has yet to turn $20,000 into convincing support, and as the third full week of September begins, the danger is once again that that level could act as resistance.

Bulls have a lot to worry about – in the coming days the Federal Reserve will decide on the next rate hike, which will affect the market far beyond sentiment.

In addition, the aftermath of the Ethereum (ETH) merger continues to play out, while at defunct exchange Mt. Gox, refunds to creditors add another potential cloud to the Bitcoin price landscape.

Cointelegraph takes a look at five potential market movers to watch for in Bitcoin over the coming week.

Fed interest rate increase “hit” in focus

The main event of the week comes in the form of the Federal Reserve’s decision on key interest rates.

After the consumer price index (CPI) for August was “warmer” than expected, the Fed will be under pressure to respond.

As such, the market has now fully priced in a minimum 75 basis point increase in the Fed funds rate, not discounting the chances of a 100 basis point increase, according to the CME FedWatch Tool as of September 19.

A 100-point increase would be the Fed’s first such action since the early 1980s.

Fed target interest rate probability chart as of September 19, 2022. Source: CME Group

The Federal Open Market Committee (FOMC) will meet on 20-21. September, and will publish a statement confirming the hike and Fed support for the figure involved.

“The Fed is not going to ease any time soon, and that’s classic human nature because we now have the benefit of knowing how far into the mistakes they made by easing too much,” Mike McGlone, senior commodities strategist at Bloomberg Intelligence, said in an interview with Kitco this weekend.

The growth in risk assets since the March 2020 crash had “swayed far too far to one side”, he said, and it is now “very clear” that a reversal will take hold.

Crypto will figure in the overall market reset, and Bitcoin will eventually come out ahead, McGlone continued, reiterating a long-held theory about the future of cryptocurrency. Gold will also surpass, but for both, pain comes first.

“Unfortunately, for the Fed to stop this sledgehammer, risk assets will have to stop them by tightening for them,” he summarized.

A move of 100 basis points this week would accelerate that process, which is now seeing catalysts from central banks outside the US after they were initially slow to start raising interest rates to fight inflation.

Popular Twitter analysis account Games of Trades, meanwhile, said it was crunch time for the S&P 500 before the start of Wall Street trading.

“In times like this, with great uncertainty across the board, the crypto market won’t do much without permission from equities,” analyst and commentator Kevin Svenson added.

The spot price drops after a poor weekly close

Over the past week, headwinds have piled up for Bitcoin, causing BTC price action to plummet.

BTC/USD lost over $2,000 on a single weekly candle, closing below $20,000 in its lowest trade since July, data from Cointelegraph Markets Pro and TradingView show.

BTC/USD 1-week candlestick chart (bitstamp). Source: TradingView

The close was followed by a sharp decline in which the pair fell below $19,000.

BTC/USD 1-Hour Candlestick Chart (Bitstamp). Source: TradingView

The bearish mood is perhaps understandable – the Ethereum merger became a “sell the news” event, and together with macro triggers contributed to another risk flight.

Now analysts are assessing the chances of the downtrend staying in place at least until the Fed rate announcement passes.

“BTC has rallied through the weekend, but there’s always potential for some volatility ahead of the close,” chain analysis resource Material Indicators told Twitter followers in part of a post on September 18.

“Big economic and FED announcements next week will spice things up again.”

An accompanying chart showed the status of the Binance order book, with support around $19,800 as it failed to sustain price action.

The day before, Material Indicators had reasoned that there was no point in imagining that a deeper fall would be avoided either. Judging from the order book, bidding was still not strong enough to support current levels.

Considering when a macro bottom might occur, popular trader Cheds bets on Q4 this year, describes Bitcoin as “right on track” to do so.

“$BTC weekly is starting to hit range lows,” he added in a further tweet to the weekly conclusion.

Shorts were piling up at the time of writing on both Binance and FTX, suggesting a concerted effort to drive the market lower by derivatives traders. This, other popular account Ninja arguedwould not ultimately be successful beyond the Wall Street opening.

US dollar reeling below multi-decade highs

Meanwhile, the US dollar is eyeing a potential macro high, having bounced back from losses following the CPI print.

A classic headwind for crypto, the US Dollar Index (DXY) is currently sitting just below 110, after consolidating for several days.

The index hit 110.78, its highest since 2002, earlier this month, while avoiding significant pullbacks.

Analyzing the immediate future last week, Hyland warned that a “new blow off top” for DXY would follow a “capitulation event” in risk assets.

A look at the inverse correlation between DXY and BTC/USD, meanwhile, confirms the impact of sharp upward moves by the former on the latter.

US dollar index (DXY) vs. BTC/USD 1-Day Chart. Source: TradingView

Ethereum gets post-merger blues

In the week following the much-hyped merger, Ethereum is experiencing a major comedown from the hype.

In a move that could skew market share back in Bitcoin’s favor, ETH/USD fell 25% last week.

Currently trading below $1,300, its lowest since July 16, the pair is seeing bearish forecasts from analysts and traders across the board.

ETH/USD 1-Hour Candlestick Chart (Binance). Source: TradingView

“Ethereum Fails to Hold Critical Support,” Svenson warned as the weekly close failed to draw a line under the losses.

Analyst Matthew Hyland, meanwhile, gave one goal of $1,000 for ETH/USD, adding that $1,250 “should hold as some support.”

Against BTC, Ethereum was down up to 19% during the week, with Bitcoin’s share of the total crypto market capitalization increasing by 1.2% since September 14.

For the well-known trader CryptoGodJohn, everything was still plays out for a “generation input” option on the pair.

Less enthusiastic was Samson Mow, CEO of Bitcoin adoption startup JAN3, who noted that while ETH/USD remained above its 200-week moving average (WMA) at current levels, Bitcoin was below its own equivalent.

The 200 WMA serves as an important trend line during crypto bear markets, and regaining it after its loss as support has historically meant a return to strength.

Dormant Bitcoin supply continues to age

Although recent price volatility sees an increase in activity in the chain, hodlers are holding firm, chain data confirms.

Related: Here’s Why a 0.75% Rate Hike Could Be Bullish for Bitcoin and Altcoins

According to the research firm Glassnode, coins held for a period of at least five years show only one trend – up.

In fresh data of the day, Glassnode confirmed that the percentage of BTC supply last active in September 2017 or earlier reached a new all-time high of 24.8%.

Bitcoin % supply last active 5+ years ago chart. Source: Glassnode/Twitter

The amount of supply last active between five and seven years ago, meanwhile, hit its highest in almost two years – 1.01 million BTC.

Bitcoin supply last active 5-7 years ago chart. Source: Glassnode/Twitter

At the same time, “younger” coins are also on the move, with the 6-12 month bracket looking their own peaks in five months.

Nevertheless, the long-term trend among experienced investors is evident when it comes to Bitcoin, as evidenced by the supply portion held by long-term holders (LTH).

“LTH Supply is the volume of Bitcoin that has been dormant for 155 days and is statistically the least likely to be used during market volatility,” Glassnode explained last week when the metric hit an all-time high of 13.62 million BTC.

Following the CPI incident, as Cointelegraph reported, Bitcoin flows to exchanges saw their biggest single-day tally in months.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.