The Fed will ‘determine the fate of the market’ – 5 things to know in bitcoin this week

Bitcoin (BTC) is starting a new week with a lot going on after its worst performance in April so far.

Monthly closes keep BTC/USD firmly within its established 2022 trading range, and fears are already at $30,000 or less.

That said, sentiment has improved as of early May, and while crypto is broadly tied to macro factors, on-chain data is pleasant rather than intimidating to analysts.

With a decision on United States economic policy on May 4, however, the days ahead could be a matter of knee-jerk reaction as markets attempt to align themselves with central bank policy.

Cointelegraph takes a look at these and other factors determined to shape bitcoin’s price action this week.

Fed back in the spotlight

Macro markets are – as is now the norm – on the edge as another US Federal Reserve meeting this week.

As inflation rages around the world, it is expected that Chair Jerome Powell will deliver on his previous promises and announce a hike in key interest rates.

How serious and how quickly they are implemented is a matter of debate, and a separate debate. concerns Are the various options already “priced” in the markets.

Any shock can cause at least temporary volatility in the entire market, and over the past six months, crypto is no exception.

So the focus is on the Federal Open Market Committee (FOMC) meeting on May 3 and May 4.

“First came the Fed. Then Netflix pocalyps. Then the Russian invasion. Then sanctions. Then the Fed and the biggest Treasury dump ever. This week it was earnings. Next week the Fed again,” said macro analyst Alex Krueger Abbreviation in the weekends:

“The Fed’s QT announcement on Wednesday will determine the fate of the market.”

Krueger was referring to a policy known as quantitative tightening (QT) — the equivalent of quantitative easing, or QE, which describes the pace of economic support withdrawal to shrink the Fed’s $9 trillion balance sheet.

The risky asset, which is already sensitive to the conservative environment, has been signaled by bitcoiners for major losses in the coming months, bringing the cryptocurrency down with them.

Jurian Timmer, director of global macro at asset management giant Fidelity Investments, said: “It’s easy to ignore given the market’s broad decline last week, but: meme stocks as well as bitcoin-sensitive equity-based equities are already new. Making a climb.” , couple,

Charts alongside Goldman Sachs’ bitcoin-sensitive equity index – the 19 major cap stocks exposed to crypto – illustrate the relative pain they are already experiencing.

Goldman Sachs bitcoin-sensitive equity index chart. Source: Jurian Timmer / Twitter

The focus will shift back to inflation next week with the publication of US Consumer Price Index (CPI) data for April.

Time for $28,000 Bitcoin?

At around $37,600, April’s monthly close was decidedly nostalgic for bitcoin holders, data from Cointelegraph Markets Pro and TradingView show.

BTC/USD 1-Month Candle Chart (Bitstamp). Source: TradingView

Despite gaining some ground later, BTC/USD has confirmed at least a short-term willingness to trade in a narrow range well below the $46,000 top of its 2022 trading corridor.

Earlier expectations were high that April would outperform, but in the end, 2022 ended Bitcoin’s worst April on record, losing 17.3% overall, data from on-chain monitoring resource Coinglass confirmed.

BTC/USD Monthly Return Chart. Source: Coinglass

Behind this, it should come as no surprise that analysts’ mood is equally cautious.

“BTC charts are heavy right now, and a break below $35k could be a rush to exit… but I don’t trust a breakout pattern in this range. We have seen short squeezes and ATH breakouts over the past year. Have seen the trap,” popular trader Chris Dunn tweeted on May 1

“Risker to guess, better to react… I’d love a $26k washout.”

Dunn is far from alone in calling for an event of capitulation to take the market to $30,000 or less.

“With respect to the surrender talk, I believe this would require bitcoin to drop below $30,000,” analyst Matthew Hyland argued In one of the many tweets about bitcoin’s volume profile:

“Low volume since May last year that brought BTC to $30k. Low volume = low turnover of buyers and sellers. Below 30k will be unlocked by buyers who bought pre-65k in early 2021.”

Hyland explained that low-volume markets are apt to see large price movements, and a significant BTC price drop could be necessary to resume engagement amid a total lack of participation at current levels.

Meanwhile, over the weekend, calls emerged for near-term travel to $35,000.

US dollar strength maintains pressure

April may have come and gone, but the ogre of the US Dollar Index (DXY) remains firmly in the room.

A day of consolidation on April 29 is already history, and on May 2, DXY was already attempting to continue a breakout that has seen dollar strength at its highest level since 2002.

At 103.4 as of press time, the DXY shows no signs of a more significant pullback, much to the dismay of bitcoiners at the mercy of inverse correlation.

US Dollar Index (DXY) 1-Month candle chart. Source: TradingView

“At the moment, there is an inverse relationship between Bitcoin and DXY” […] This indicates that if the index is above the 102 DXY resistance level, it could weaken bitcoin, and price action could return to the $35k and below area, especially if rising DXY is seen as monetary policy tightening. can be attributed to,” explained the latest Uncharted newsletter from on-chain analytics firm Glassnode.

In the event, 102 was little problem for DXY, which could stand to gain even more if the Fed rate hike decision is on the upper end of the spectrum.

“The growth of the USD is highly dependent on the course of action of the Fed. Rising inflation and a potential 50 bps rate hike in early May could strengthen the DXY,” Glassnode said.

As Cointelegraph recently reported, other major world currencies have suffered losses in recent weeks with crypto in terms of the USD, with a particular focus on the fate of the Japanese yen. Japan, unlike the US, continues to print a large amount of liquidity, devaluing its currency even more.

Trader: illiquid supply outweighs importance of price drop

Last week saw a new record for the proportion of bitcoin supply inactive for at least a year – 64%.

As experienced hodlers – or at least those who bought below $28,000 before July 2021 – are therefore determined not to surrender yet.

Now, more data has been added to the mix, and it comes in the form of a liquid supply.

According to Glassnode’s illiquid supply change indicator, there has been a significant increase in the overall segment of BTC supply in recent weeks, which is no longer available for purchase.

The result is that illiquid supply changes haven’t been seen since the end of 2020, when BTC/USD started showing signs of a “supply shock” as market participants piled into what was already a solid “holding” asset class. Had done it.

“This number is reaching the extreme high numbers, which we have also seen in 2020 (build-up). Ultimately, a large number of coins are ‘impure’, which adds to the potential for a potential supply shock,” Cointelegraph contributor Michael van de Pope said. said As part of the comments on the numbers.

Continuing, van de Pope argued that the indicator “tells a lot” and could even allay some fears as low as $30,000.

“Yes, the market may still make a new low in which the bear market continues (relatively; the altcoin bear market is currently active for a year, meaning retail is over) and hit $30K But, fundamentally, the data tells a lot,” he said.

Bitcoin illiquid supply change chart. Source: Glassnode

Crypto Sentiment “Cross Over” Macro

In what could be a silver lining in the current circumstances, crypto sentiment is already pointing higher this week, even though traditional market sentiment remains nervous.

RELATED: Top 5 Cryptocurrencies to Watch This Week: BTC, LUNA, NEAR, VET, GMT

The Crypto Fear and Greed Index, which hit a two-week low of 20/100 last week, has now moved out of its “extreme fear” zone.

Crypto Fear and Greed Index (screenshot). Source: Alternatives.me

At 28/100, Crypto’s index is now well above its traditional finance (TradeFi) counterpart, the Fear and Greed Index, which measured 27/100 on May 2.

Fear and Greed Index (screenshot). Source: CNN

Should crypto continue to fulfill its function as the market moves to come, there may be slight cause for relief on the data.

28/100 is crypto’s best reading since April 17th.

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