Will Fed prevent BTC price from reaching $28K? — 5 things to know in Bitcoin this week

by · July 25, 2022

Bitcoin (BTC) enters a new week with a question mark over the fate of the market ahead of another key monetary policy decision in the United States.

After sealing a successful weekly close – the highest since mid-June – BTC/USD is much more cautious as the Federal Reserve prepares to raise benchmark interest rates to combat inflation.

While many hoped the pair could leave its recent trading range and continue higher, the weight of the Fed is clearly visible as the week gets underway, adding pressure to an already fragile risk asset scene.

This fragility also shows in Bitcoin’s network foundation as the miner load becomes real and the true cost of mining through the bear market shows.

At the same time, there are encouraging signs from some calculations on the chain, with long-term investors still refusing to give in.

Cointelegraph takes a look at this week’s possible market moves in a busy week for crypto, stocks and more.

Fed decides next rate hike in ‘another fun’ week

The story of the week, all things being equal, is without a doubt the Federal Reserve rate hike.

A familiar story, the Federal Open Markets Committee (FOMC) 26-27 July will see policymakers decide the extent of the next interest rate move. This is tipped to be either 75 or 100 basis points.

US inflation, as in many jurisdictions, is at forty-year highs, and the progress appears to have taken the establishment by surprise as calls for a peak are met with even greater gains.

“Should be another fun one,” Blockware lead insight analyst William Clemente in summary on 25 July.

The interest rate decision is due on 27 July at 14:00 EST, a diary date that may well be accompanied by increased volatility across risk assets.

This has the potential to worsen, one analyst warned, thanks to low summer liquidity and a lack of conviction among buyers.

“Going into ECB/FOMC/Tech earnings amid lowest liquidity of the year. The market is back to overbought. Bulls, let it ride,” Twitter account Mac10 wrote.

An earlier post also flagged Q2 earnings reports as potentially contributing to a downward move in line with past behavior.

“BTC and risk assets have pumped higher on FOMC events this year, only to sell off after, is this time different?” co-analysis account Tedtalksmacro continued:

“June’s FOMC meeting saw the US central bank deliver a 75bps hike – the largest single rate hike since 1994. Bigger hikes expected before inflation ‘normalises’.”

The week already feels different to last, even before the events begin to unfold – Asian markets are flat compared to last week’s bullish tone, one that accompanied a resurgence across Bitcoin and altcoins.

While one argument says the Fed can’t raise interest rates much more without slowing the economy, Tedtalksmacro meanwhile pointed to the labor market as a target to keep the upturns coming.

“Bitcoin will struggle to go past 28k until data deteriorates,” he added.

The spot price fails to reach the key moving average

Bitcoin’s latest weekly close was something of a halfway house for bulls, data from Cointelegraph Markets Pro and TradingView shows.

While managing its best performance in over a month, BTC/USD missed out on reclaiming the crucial 200-week moving average (MA) of $22,800.

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

After the close, which came in at around $22,500, Bitcoin began to fall to the bottom of its most recent trading range, and remains below $22,000 at the time of writing.

“By observing the IF, we find support at $21,666 horizontally. Patience,” popular trader Anbessa told Twitter followers in their latest update.

Fellow account Crypto Chase, meanwhile, suggested that a return to the 200-week MA would result in further modest upside.

“Picking around the Daily S/R (red box) with an inability to turn 22.8K (Daily Resistance) to support. Several attempts to do so but failed so far,” he wrote along with explanatory diagrams:

“If price pushes above again and finds acceptance, I would see 22.8K to become support for potential long entry to 23.2K.”

A later update eyes $21,200 as a potential bearish target, this also forms a support/resistance level on the daily chart.

At $21,900, however, Bitcoin is still around $1,200 higher compared to the same point a week ago.

BTC/USD 1-week candlestick chart (bit stamp) with 200-week MA. Source: TradingView

Elsewhere, the latest price action was not enough to change longer-term views. For Venturefounder, a contributor at chain analytics firm CryptoQuant, a macro bottom had yet to emerge, potentially coming in as low as $14,000.

“In line with recent halving cycles, this remains my most viable forecast for Bitcoin before the next halving: BTC will capitulate in the next 6 months and reach the bottom of the cycle (anywhere between $14-21k), then cut around $28-40k for most of 2023 and be at ~$40k again by next halving,” a retweeted forecast originally from June repeated.

The difficulty returns to March level

In a sign that miners’ troubles due to weak prices may only be beginning, the upheaval is now visible across the entire Bitcoin network.

The difficulty measure, the measure of competition among miners adjusting to participation, has been slowing since late June and is now back at levels not seen since March.

The last adjustment was particularly noticeable, knocking 5% of the total difficulty and heralding a change in miner activity. It was the biggest single drop since May 2021, and the next one, coming in ten days, is currently estimated to take difficulty down another 2%.

Arguably the most important aspect of the Bitcoin network itself, difficulty adjustments also set the stage for mining by leveling the playing field for miners. The lower the difficulty, the “easier” – or less energy-intensive – it is to mine BTC due to the fact that there is less competition overall.

In the meantime, however, the need to stay afloat is a concern, data shows. According to CryptoQuant, miners sent 909 BTC to exchanges on July 24 alone, the most in a day since June 22 and a 5% difficulty reduction.

A turnaround for miners thus remains out of sight this week.

Basic overview of Bitcoin network (screenshot). Source: BTC.com

As Cointelegraph additionally reported, it is not just the BTC price that is giving miners a hard time under current conditions.

Congratulations on your MVRV-Z result

One of the hottest on-chain calculations in Bitcoin has just crossed what is arguably the most important level – zero.

On July 25, Bitcoin’s MVRV-Z score returned to negative territory after a brief week above, falling into the zone usually reserved for macro price bottoms.

MVRV-Z shows how overbought or oversold BTC is relative to “real value” and is popular thanks to its uncanny ability to define price floors.

The return could signal a new period of price pressure, as accuracy in catching bottoms has a two-week margin of error.

In early July, Cointelegraph reported on MVRV-Z, giving a worst-case scenario of $15,600 for BTC/USD this time.

Sentiment is cooling from four-month highs

For the crypto market, the past week may well have been a brief period of irrational exuberance if sentiment data is to be believed.

Related: Top 5 cryptocurrencies to watch this week: BTC, ETH, BCH, AXS, EOS

The latest figures from the Crypto Fear & Greed Index show a steady decline from what has been the most positive market sentiment since April.

As of July 25, the index stands at 30/100 – still described as “fear” driving sentiment overall, but still five points above the “extreme fear” limit where the market previously spent a record 73 days.

Sentiment has nevertheless made a real comeback since mid-June, when Fear & Greed hit some of its lowest levels ever at just 6/100.

Crypto Fear & Greed Index (screenshot). Source: Alternative.me

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.