Bitcoin (BTC), the largest cryptocurrency in the world, faced selling pressure last week. Fed Chairman Jerome Powell spoke to Congress on March 7th, mentioning a likely increase in monetary policy tightening.
Powell noted that the overall market segments show minimal indications of disinflation, with the exception of the housing construction industry. He stated that there must be a decrease in inflation within this particular sector and the labor market conditions are likely to improve. As a result, the Fed is prepared to quicken the rate hike process.
During his testimony before the US Congress on Tuesday, Federal Reserve Chairman Jerome Powell stated that the central bank intends to continue raising interest rates and is dedicated to keeping inflation below 2%.
It’s worth remembering that on February 1st, the US Federal Reserve raised the key rate range for the eighth consecutive time, which amounted to a 25 basis point increase, bringing the range to 4.5%-4.75% per annum.
After these comments, the DOW and S&P 500 decreased by 1.18% and 1.08%, respectively, and Bitcoin retraced to $21,927 but later regained some ground.
If the inflation report is worse than anticipated, the expected reaction is for the FOMC to increase interest rates more than anticipated on March 22, when Powell will offer his assessment of the economy to explain the magnitude of the rate increase.
Before the statement, the market expectation was a 0.25% interest rate hike to the target range of 4.75% to 5.0%. However, this projection may change in the next two weeks, particularly if Powell continues to make hawkish comments.
According to CME Group data, market participants anticipate a greater than 50% chance of a 50 basis point hike at the March 21-22 meeting.
Analysts suggest that digital gold, or Bitcoin, has been stabilizing within the $22,000 to $25,000 range. This stabilization has been accompanied by a bearish trend that has also affected several altcoins. According to analysts, the market capitalization has reached the highs of 2017, and is now searching for a “higher bottom.”
If the indicator falls below the 200-week moving average, Bitcoin’s price could potentially drop to $19,700.
In March, Bitcoin’s price fell below $22,000, which was influenced by Silvergate’s decision to delay the submission of their report to the SEC and the increased regulatory scrutiny in the industry. Earlier, Moody’s had downgraded Silvergate’s rating from “Ba3” to “B2” due to a significant capital decrease after a loss of $1.05 billion in October-December 2022.
Additionally, FTX Group’s crypto derivatives platform LedgerX has recently announced the termination of its partnership with Silvergate and will require fiat transfers to be made through Signature Bank.
It’s important to note that in February, the Fed, FDIC, and OCC issued a joint statement reminding US credit institutions of the potential risks associated with companies that focus on providing crypto services.
The Bitcoin economy responds to various levels, not just those typically analyzed through technical analysis. On-chain psychological cost basis levels of different investor cohorts also have an impact, not just in terms of their realized price, but also in terms of the degree of profit and loss held within their supply. From this perspective, the market is currently in a transitional phase, limited by the Realized Price of Older Supply and the average activity of Whales since the 2018 cycle bottom.
At present, Bitcoin bears appear to have the upper hand over the bulls. As the cryptocurrency drops below critical support levels, some analysts are forecasting that its price could decline further, possibly dipping below $20,000. However, macro factors are not currently conducive to another rally.
Direction of the cryptocurrency market
The start of 2023 has been robust for Bitcoin and the crypto market, with 64% of BTC investors experiencing profitability as the BTC price hit $25,300 on February 21. Even struggling Bitcoin miners saw a significant boost, with revenues soaring by 50% to $23 million, indicating a recovery for the struggling industry.
However, top crypto investors warn that more sell-offs are looming, and Bitcoin analysts caution about the long-term downtrend persisting. Some traders expect the BTC price to retrace to the CME futures “gap” below $20,000 at some point in the future.
Meanwhile, investors are likely to remain cautious about risk-taking, and potential crypto traders may want to wait for indications that U.S. inflation has peaked or for the Fed to suggest that smaller-sized interest rate hikes are possible. A clearer roadmap for regulation of the crypto industry would also improve sentiment across the sector.