Today the FOMC (Federal Open Market Committee) will decide whether to raise rates or not. The price of BTC seems to be waiting for this data, as it has been almost at a standstill for three days now.
In fact, on Sunday Bitcoin was back above $28,000, and there it has practically remained until today.
A week ago, by contrast, it was at $25,000, and two weeks ago at $22,500.
The FOMC and the price of Bitcoin (BTC)
FOMC is the body of the Federal Reserve, i.e., the US central bank, which precisely determines the dollar interest rate policy.
The fact is that the current level of rates, between 450 and 475 points, is already very high. In fact, it is at the highest in 15 years.
Such a high level of interest rates is hurting especially those who have debts to pay, so much so that the bank failures in recent weeks in the US may also be due to this factor.
On the other hand, the Fed is forced to do something to combat inflation, since it is at its highest level in 40 years.
There are only two hypotheses circulating these days: either it raises them by 25 basis points, which is the minimum, or it does not raise them. The hypothesis of another increase from the 50 points faded when inflation data were published about ten days ago.
In fact, in February inflation fell to 6%, from 6.4% in January, and this was interpreted by many as a sign that such high rates are already adequate enough to fight inflation. But since the goal in theory would be to bring them back to 2% by year-end, the Fed cannot reduce them.
The markets are quite convinced that the FOMC will announce a 25-point increase today, however, in the event that it instead announces that it does not raise them, the markets may react well, since it would make debt payments less burdensome than expected.
However, the Fed has just been forced to create another $300 billion out of thin air, so it actually seems really unlikely that it could decide not to raise rates.
Indeed, inflation remains enemy number one.
In the event of a 25-point increase the markets might still react with some volatility, but the price of Bitcoin is not expected to react suddenly with significant movements. Instead, in case of no increase, it could react immediately well.
The trend of BTC in relation to the macro environment
Even though the current price level of BTC is 70% higher than it was at the beginning of the year, it is not actually considered particularly high by many.
The point is that in these early months of 2023 it has recovered all the losses accumulated in 2022 after the failure of Celsius, BlockFi, and FTX, but not those caused in May by the implosion of the Terra/Luna crypto ecosystem.
A year ago the market value of a Bitcoin was $41,000, down to $37,000 in early May 2022 before the collapse due to Terra.
But right now the key point seems to be the $30,000 touched on the very day of Terra’s implosion, although in the following days for a very short period it also fell as low as $25,000.
Thus, since the $22,000 touched after the Celsius failure has now been largely exceeded, the two key levels now become $30,000 and $37,000. The latter level would be in line with the trend of 2019, i.e., the previous post bear-market year, obviously in proportion to the peak touched during the bubble.
However, the most resounding figure seems to be that of dominance.
Even though different sources calculate it differently, because it depends on the number of cryptocurrencies they take into account, using TradingView’s data it appears that the current 47% is very close to the highs of the last twelve months, namely 48.5 % in June 2022.
While the level was much higher until April 2021, with 73.6% touched in December 2020, after the failure of Celsius and BlockFi in June 2022 it had fallen to an annual low at 39.1% in September.
However, during 2023, Bitcoin‘s dominance recovered first to 43% and then in recent days to nearly 48% with a real spike that lasted only a week.
It is worth noting that Bitcoin’s dominance falls a lot especially during the so-called altseasons, that is, when altcoin prices perform very well.
Instead, in 2023, and especially in the last few days, the price of Bitcoin in particular is performing well, particularly because of the problems in the traditional banking sector and especially the $300 billion created out of thin air by the Fed.
Bitcoin is in fact increasingly perceived as a form of protection precisely against overly expansive monetary policies of central banks, and in particular the Fed. So it is inevitable that the monetary policy of the US central bank will affect the market value of BTC.
And this is precisely why in the event that the FOMC decides not to raise rates today we expect the price of Bitcoin to rise again.
The altcoins could follow closely in the near future, when BTC’s run eventually comes to a halt.