The Fed is running low on ammunition as $30,000 Bitcoin price becomes a key battle line

The Bitcoin price successfully defended the $28,000 support on May 2, but it has yet to prove the strength needed to reclaim the $29,200 level from April 30.

$30K becomes crucial for Bitcoin bulls

Some analysts will attribute the recent downtrend to expectations of a May 3 Fed rate hike, but in reality the market is pricing in 92% odds for a modest 25 basis point increase to its highest level since September 2007.

As market intelligence platform Decentrader pointed out, comments from Fed Chair Jerome Powell are more likely to bring elements of surprise, whether they point to further measures to slow the economy or signal higher odds that the terminal rate is close to 5%. Powell is scheduled to hold a press conference at 2:30 PM Eastern Time.

From an employment perspective, the central bank has reason to believe that the market continues to be overheated. The US government reported 1.6 job vacancies for every unemployed worker in March. Furthermore, according to the “ADP National Employment Report” released on May 3, private payrolls increased by 296,000 jobs in April, well above the market consensus of 148,000.

But raising interest rates has negative consequences for families and small businesses in particular. Financing and mortgages become more expensive, while it becomes more attractive to invest in interest. Such an unintended effect of curbing inflation can further shake the core of the financial system, as shown by the latest bank failure, this time of First Republic Bank.

Therefore, an eventual price breakout for Bitcoin (BTC) above $30,000 could be a definitive sign that investor perception is shifting from viewing Bitcoin as a risk asset to a scarce digital asset that directly benefits from a weaker traditional banking system.

But to gauge whether Bitcoin’s resilience above $28,000 is sustainable, an investor needs to analyze whether excessive leverage has been used by buyers and whether professional traders are pricing higher odds of a market decline using BTC derivatives.

Bitcoin futures show low demand from leveraged buyers

Bitcoin quarterly futures are popular with whales and arbitrage tables. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, futures contracts in healthy markets should trade at a premium of 5 to 10% on an annual basis – a situation known as contango, which is not unique to crypto markets.

The data suggests that Bitcoin traders have been extra cautious over the past couple of weeks. Although the BTC price flirted with $30,000 on April 26, there was no sign of demand for leveraged longs.

Related: Balaji cashes out his insane $1M Bitcoin stake, 97% below price target

Also, the Bitcoin futures premium has stagnated close to 2% since April 23, suggesting that buyers are unwilling to use leverage, which is healthy for the market. By avoiding exposure to futures contracts, it reduces the risk of large liquidations during negative Bitcoin price movements.

Bitcoin options traders remain neutral

The Bitcoin options market can also help a trader understand whether a recent correction has made investors more optimistic. 25% delta bias is a clear sign when arbitrage tables and market makers are charging too much for upside or downside protection.

In short, if traders expect a Bitcoin price drop, the bias calculation will rise above 7%, and tension phases tend to have a negative bias of 7%.

The options delta’s 25% bias has shown balanced demand between call and put options over the past four weeks. That should come as a surprise given that the Bitcoin price rose 10% between April 25 and April 30, when it last tested the $30,000 resistance.

Accordingly, Bitcoin options and futures markets suggest that professional traders are not placing their chips on BTC price breaking above $30,000 anytime soon. On the other hand, these whales price similar odds for positive and negative surprises.

Ultimately, given that the Fed clearly has a limit to raising interest rates without causing a recession, Bitcoin’s price should be positively affected, regardless of the May 3 decision.

Fed Chair Powell will eventually force the US Treasury Department to inject more money into the economy to contain the banking crisis, which will be beneficial for a scarce resource like Bitcoin.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.