Cryptocurrency Collapse: Bitcoin and Ethereum Collapsed during FOMC Week
It is unlikely that anyone will turn the tongue to say that this kind of start of the week was a good wake-up call for those who, instead of following the Asian markets, preferred to sleep. And quite reasonably. Bitcoin is below $19,000, and Ethereum is at $1,300 – well, just a “wonderful” opening of the week of trading in the cryptocurrency world, which is more than a little nervous, and more than a little alarming.
A week that will be dominated by various macro events and data, primarily FOMC decisions regarding further interest rate hikes in the US. The increase in rates, the expectation of which was not justified, led the markets into a state of nervousness and anxiety, the results of which are visible to everyone. A situation that also needs to be analyzed in detail in order to try to position itself correctly in the Bitcoin and cryptocurrency market.
Nervousness and Bearish Sentiment: FOMC Week Opens for Bitcoin and Cryptocurrencies
The main culprit, if you try to find one, is the FOMC meeting on Wednesday, when most residents of Russia will have dinner or enjoy a well-deserved rest after a long working day. The situation is worrisome for a number of reasons, which we have already considered, and which it is useful to remember in order to understand in what context we are moving.
- Everyone is looking forward to the FOMC meeting with fear
The narrative that appeared on the markets in June, that inflation should rise sharply, now seems to be being revised. It hasn’t grown up. Inflation has gone out of control.
The data received in July and August are of the greatest concern, because, despite the partial recovery of the overall price level, we are still far from calling it significant.
Inflation is also high in the US, where there is an energy problem that Europe is facing, albeit on a much smaller scale. And in such a situation, it is easy to expect still very aggressive maneuvers on the part of the Fed.
- The Fed
All in capital letters, because this is the most important event of the week. On Wednesday, we will find out whether the Fed decides to raise base rates by 75 or even 100 bps – a hypothesis that markets are beginning to expect, and which may become likely if the data available to the Fed turns out to be less good than expected. Needless to say, this will mean a catastrophe for the cryptocurrency and the Bitcoin market.
- Europe in trouble
We can ignore this, but the main part of the fears about a possible coming recession is caused by Europe. A bad situation with the energy sector, an equally bad situation with the public debt, and the inability or inability to quickly reverse the trend and return to the right path.
Europe, and especially Germany, on which everything economically depends, pays a very high price for the geopolitical problems in the East, and if the situation with gas supplies does not normalize quickly, then Europeans will have to prepare for a cold winter both for their families and for the stock markets. With these three different elements in mind, we can proceed to analyze the current situation.
A week of high tension for the economic calendar
Now do you understand the reason for such nervousness in the markets? This week is the week of economic decision—making by the largest countries, with the United States at the head.
- FOMC: Interest rates
If your scale of importance of the events of the economic calendar is from one to three, then the FOMC meeting on Wednesday, when the markets in Europe will be closed, will matter five times more. The decision is important and already puts the markets on high alert, and for many it will be so bad that they will close their positions in advance.
The essence of the problem is as follows: the FOMC will announce the following decisions regarding interest rates in the United States. The majority consensus a few weeks ago was between 50 and 75 basis points. Now a violent reaction to a further rate hike has begun, and the markets have begun to price even a potential increase of 100 bps. According to CME, the markets are 79% inclined to increase by 75 bps and 21% – to increase even by 100 points. It seems that no one believes in the possibility of raising the rate “only” by 50 basis points.
To understand how this situation developed, just look at the sentiment chart below. In less than a month, sentiment has changed dramatically, moving to much higher expected increases.
Anxiety was growing.
- Inflation in Canada
Despite the fact that this is a relatively marginal economy, it will be important to see how inflation will move in an economy that largely directly interacts with the US economy. If this data also turns out to be bad, it may cause new concerns in the markets.
- Lagarde’s speech
Although the European economy is not of particular interest to the cryptocurrency and Bitcoin market, nevertheless, the speech of the head of the ECB will be an event worth watching. Madame Lagarde will speak on September 20, today, at 19:00.
- Japanese Monetary Policy
The Japanese yen is one of the most observed as a currency that has found itself in great difficulty, compared with other currencies of developed economies (along with the dollar, ruble, euro). The decisions of the Bank of Japan will contribute to understanding whether, how and when the Forex market will return to relative normality. The date is next Thursday.
- Jerome Powell
And again on Friday, when the markets in the States will close. After the FOMC meeting, a relatively clear picture of the possibility of changing rates in the coming months is expected. Currently, the consensus assumes an increase in the rate by another 75 basis points in the next round. We’ll see.
The best scenario for Cryptocurrencies and Bitcoin
It seems that after the collapse of cryptocurrencies and Bitcoin, they largely evaluated the worst possible scenario, as we described it above. The best scenario we have from investors who can take a position now is a rate hike of just 75 basis points, accompanied by more conciliatory tones from Jerome Powell.
Conciliatory tones in the sense of hinting at some improvement in fundamental economic indicators, leading to subsequent increases at the lower end of the forecast spectrum. Yes, it’s going to be a busy week, but with such important data at stake, there’s no guarantee that the short-term trend won’t turn around pretty quickly.
Always remember the great nervousness that continues to dominate the markets, after an unforgettable weekend and the opening of Asian markets, which plunged everyone, or almost everyone, into despondency.
Will the downward trend continue?
On Monday, according to the data Coinmarketrate.com Bitcoin investors had no reason to rejoice: the cryptocurrency plummeted to $18,464, marking a new local minimum.
From here, the coin finally began its gradual recovery. But, this time, traders and analysts are not so sure what the market is waiting for tomorrow.
Indeed, not only Bitcoin is now in the spotlight of cryptocurrencies. In particular, even the long-awaited update of Ethereum “The Merge” did not save ETH from falling, and did not warm up the markets.
The activation of the merger went as planned, and it is expected that it will bring many benefits to the smart contract platform. Among other things, it is assumed that as a result Ethereum will become faster, safer and more environmentally friendly.
“It would not be an understatement to say that the Ethereum merger was the most anticipated event in the history of cryptocurrencies,” said the blockchain data provider Messari. According to this, investors in the options market are already positioning themselves with stakes on the long side.
According to Messari, the stake holders believe that by the end of October, the ETN will reach a value of $4,000 to $5,000:
“It’s a bet that ETH will more than double over the next six weeks, just to get these positions closer to breaking even.”
But not only ETH is the carrier of the “Merger”. It seems that these sentiments are spreading to other crypto assets as well. The top trader “Dave the Wave“, for example, is still confident that Bitcoin is only temporarily ”limping” and that bulls will soon be “trampling” in their place again. There is plenty of optimism!
But many are asking one question: if Bitcoin is on the edge of the abyss, will it still be possible to turn around?
“First the crash, then the rise”
The words of this analyst carry weight for many industry participants: in 2021, Dave Volna knew how to predict the collapse of Corona, followed by a V-shaped recovery. He also expects a corresponding recovery now:
“There is a lot of upward pressure at the resistance level. This is a bullish factor for Bitcoin, despite the recent volatility,” he wrote to his Twitter followers.
His colleague Kaleo (@CryptoKaleo on Twitter), one of the most famous traders in the industry, holds a similar opinion.
Too many investors are still traumatized by previous corrections and therefore fear an unrealistic collapse to $10,000. Although a decline is possible for Bitcoin, however, Kaleo sees an upward movement towards $28,000.