Looming ‘death cross’ may put Bitcoin bull run in danger ahead of Fed meeting

Looming ‘death cross’ may put Bitcoin bull run in danger ahead of Fed meeting

Bitcoin (BTC) wobbled around $40,000 as investors waited for the Federal Reserve to release its new set of economic projections on Wednesday.

The market’s focus shifted on two important questions: will the United States’ central bank officials signal their intentions to raise interest rates in 2023, instead of 2024? And how much inflation they think would rise in the remainder of 2021 and the next year?

Taper tantrum

In March, the last Fed projection saw 11 Federal Open Market Committee (FOMC) officials agreeing to keep interest rates near zero at least until 2023. That suggested a tightening in Fed’s monetary policy in 2024. It would also imply that the Fed might trim its $120 billion asset purchasing program earlier than anticipated.

The prospects of “taper tantrums” in the medium run have also increased due to the latest consumer price index (CPI) readings, Fed’s preferred gauge to measure inflation. The April CPI data showed that inflation rose to 4.2%. Meanwhile, in May, it rose to 5% for the first time since the year 1992.

Nevertheless, Fed rubbished the dramatic inflationary spikes by saying that they are ‘transitory’ in nature. The central bank has committed to waiting until it sees inflation rates holding themselves up near higher levels before announcing rate cuts. The projections on Wednesday will indicate how much officials will wait for the next tapering. 

Faster growth and inflation prospects make a rate hike move more likely in 2023. Source: Bloomberg

David Tawil, president at ProChain Capital — a New York-based multi-strategy crypto-asset fund, believes Fed’s sentiment towards keeping its expansionary policies intact would change following Wednesday’s FOMC meeting.

“As always, the Fed’s post-meeting statement is going to [be] parsed carefully by analysts,” he told Cointelegraph.

“However, it is likely that even according to the most conservative reading, that the Fed will tip its hat to low unemployment and growth, and indicate a move toward tapering bond-buying and raising rates.”

Bitcoin outlook bullish

The rate hike projections give Bitcoin at least two years to continue its anti-inflation bull run.

The benchmark cryptocurrency emerged as a star performer after the March 2020 global market crash, led by fears that the Fed’s quantitative easing policies, coupled with the U.S. government’s trillions of dollars worth of stimulus aid to Americans, would sap investors’ appetite for government bonds and the U.S. dollar.

The BTC/USD exchange rate jumped from its mid-March 2020 nadir of $3,858 to as high as $64,898 in April 2021, up 1,582%. Meanwhile, the yield on the benchmark 10-year US Treasury note surged from 0.36% in March 2020 to 1.774% in March 2021. Yields move inversely to bond prices.

The U.S. dollar index, which measures the greenback’s strength against a basket of top foreign currencies, crashed 9.48% in the same period. The bond market and the U.S. dollar have recovered lately on strong economic projections in the U.S. post reopening.

Meanwhile, Bitcoin has dipped by more than 25%, partly because of Elon Musk’s anti-Bitcoin tweets and regulatory FUD.

Bitcoin (orange), US dollar index (blue), and 10-year Treasury yield performance in 2020 and 2021. Source: TradingView.com

Nick Spanos, the founder of Bitcoin Center NYC, noted that rising inflation coupled with Fed’s efforts to keep interest rates near the current 0.25% gives Bitcoin ample opportunities to resume its bull run.

That is also because other traditional safe-havens, such as government bonds, offer historically lower yields. At the same time, Bitcoin promises a higher rate of growth.

Spanos said:

“Following the publication of the Fed Dot Plot today, I see a temporal reaction in the crypto market with an upsurge in the price of Bitcoin. Based on this fundamental, retesting the $45,000 level looks more likely, in the coming days.”

Tawil also presented a bullish outlook for Bitcoin, noting that investors would keep looking at the cryptocurrency as their “flight to safety” against higher inflation.

“If the legislative critics and the celebrity personalities can keep their mouths shut regarding Bitcoin (which they probably can’t), Bitcoin could make a run for $75K by year-end,” he said.

Death cross looms

Technical setups on Bitcoin charts don’t agree with bullish analysts.

For instance, the BTC/USD exchange rate has recently encountered higher selling pressure in the $40,000-42,000 range. As a result, traders apprehensively treat the area as their cue to secure short-term profits, thereby risking declines towards the next point of supports around $35,000, $32,000, and $30,000.

Meanwhile, Bitcoin’s 50-day simple moving average (50-day SMA; the blue wave) hints at closing below its 200-day simple moving average (200-day SMA; the saffron wave). The said crossover is called Death Cross — an indicator notorious for predicting advanced price declines across financial markets.

Bitcoin hints at bearish continuation on death cross fears. Source: BTCUSD on TradingView.com

“Whenever a Death Cross occurs, Bitcoin experiences deeper downside,” noted Rekt Capital, a pseudonymous market analyst. “In 2014, a Death Cross preceded an extra -71% drop. In 2017, an extra -65% drop. [And], in 2019, an extra -55% drop.”

Related: Here’s how Bitcoin’s impending death cross could be a contrarian buy signal

The trader added death crosses remain a prediction, not a scenario, hinting that the Bitcoin price might recover higher despite the bearish indicator’s appearance in the sessions ahead.

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