Bitcoin Heads Lower (Again!)

Just as Bitcoin bulls thought it couldn’t get any worse, the market took another leg lower this week. Following an almost 20% decline last week, the bulk of which came on Friday as the market lurched beneath 4151 support, prices opened up under heavy selling pressure this week. BTC was down over 12% at the lows before buyers stepped in, driving a rebound, to the market back into the green on the week. BTC is sitting back atop the 37030 support level as of writing and the big question now is, as ever, do we go higher from here, or roll back over?

Traders Await FOMC

Bitcoin has been under heavy selling pressure over recent weeks as the market has re-centred its focus on Fed tightening expectations. The Fed is currently pegged to lift rates four times this year, with the market widely expecting March to mark the lift off point. Looking ahead to this week’s meeting, the market is looking for a hawkish confirmation from the Fed and will be closely watching for any changes in the outlook, particularly given the passing of omicron risks in recent weeks. With this in mind, USD bulls are citing upside risks over the coming year linked to the potential that the Fed might need to raise rates more than expected in order to curtail soaring inflation.

Upside Risks for BTC

Now, if this is the case, and the Fed turns more aggressively hawkish, then this is clearly bad news for BTC. With the crypto currency trading more like a typical risk asset. USD strength is not helpful. However, given the level of hawkish expectation within the market, there is plenty of downside risk for USD should the Fed disappoint the market’s expectation. If the Fed doesn’t upgrade its outlook or if policy actions don’t become any more aggressive, this would likely be met with some USD unwinding.

Potential Turning Point?

In terms of the impact on BTC then, any periods of USD weakness are likely to benefit the currency. Additionally, given the soaring level of open interest in BTC (Monday’s plunge marked the highest daily volume since October 2021, which marked the penultimate high), the conditions are ripe for a sharp short-squeeze higher in BTC. There is the potential that this week's low marks a capitulation point from which we can start to climb again.

Technical Views

BTC

The sell off this week took price down into the completion point of the large symmetry objective with the 2021 swing. The market tracked that prior decline almost to the pip before bouncing. Given the big volume spike at the lows, we now have the potential for a further rebound. To the topside then, the key levels to note are the 41510 level and 45405, with a retest of the broken bullish trend line (and bear channel top) coming in just ahead of that. If the market can trade back above the broken trend line, then the outlook will shift dramatically for BTC.