Bitcoin's Fate Is In the Hands Of The Fed
Kalen Houck | Sep 21, 2022 07:10AM ET
Bitcoin is down another 15%+ from where it stood just one week ago on Sept. 13. The Federal Reserve's remarks on inflation and interest rates triggered a sell-off in global markets that was widespread, and cryptocurrencies were not immune to the news.
Bitcoin is down over 70% from all-time highs from just a year ago, and with the Fed's positioning, there is more downside. You can see in the chart below that the major downtrend line being put in over the last year was respected almost to a "T" as it was rejected lower last week. We are now basing around the 18500 support and forming a descending triangle into the bottom.
My eyes are on this support level and how the price reacts to it. If we break below it, wait for the volume to confirm the move down before jumping in. I also prefer to see a backtest where I can place a safe stop, but either way, make sure to trade it safely. These are challenging times to trade, and the more you can wait for confirmation of the moves, the more profitable your trading will be.
Now the Federal Reserve is expected to raise interest rates by another 0.75 points this week, which will have a major effect on both stocks and cryptocurrencies. This year's inflation rate is the highest in decades, causing the Fed to adjust its monetary policy aggressively. This has crushed global equities and continues us on the path toward recession.
Surprisingly cryptocurrencies have shown to be highly correlated to equities during these tough economic times, following the Dow Jones Industrial Average and S&P 500 to the downside.
It was once thought that crypto was a hedge against inflation and wouldn't be affected by standard economic factors. However, that has proven false over the last few years as we've watched Bitcoin highly correlate to the S&P 500.
Most economists expect the Fed to continue raising rates. Today, the expectation is 75 basis points. These interest rate hikes are incredibly influential to the cryptocurrency markets, and all traders need to be aware of the impact they continue to have on the markets. Expect lower prices ahead until the Fed can get the inflation rate down to reasonable levels.
Altcoins and "meme coins" have taken quite the beating this week and should continue to follow Bitcoin's movements. Ethereum's currency trades around $1338 (down around 25% from prices just one week ago and down over 70% from all-time highs).
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Many smaller tokens or altcoins have experienced even greater sell-offs this year with coins like Solana, Dogecoin, and Shiba Inu down around 90% from all-time highs.
The event to watch each week is the Federal Reserve's stance on inflation , interest rates, and bond purchases. There is a saying, "Don't fight the Fed," and we would be wise to heed that advice. Until the Fed's monetary policy shifts, there is more downside risk ahead.
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