Bitcoin had a rise in value on Monday due to the increased likelihood, as predicted by U.S. rates traders, of the Federal Reserve maintaining its current borrowing costs for the remainder of the week and the year.
The predominant cryptocurrency in terms of market value experienced a significant surge, reaching $27,220, which marks the highest value observed since August 31st. This notable increase of about 8% occurred subsequent to the emergence of the death cross pattern on its daily price chart approximately one week ago. The subsequent increase in value following the occurrence of a bearish crossing, where the 50-day simple moving average (SMA) falls below the 200-day moving average, further supports the notion that this measure is not a dependable solo indicator.
The rebound occurs in light of the fact that Fed funds futures are currently suggesting a 99% likelihood that the Federal Reserve will maintain interest rates within the range of 5.25% to 5.5% on the upcoming Wednesday. According to the futures data, there is a 69% likelihood of no action being taken in November, and a 58% probability of the same outcome in December. The central bank has implemented a series of interest rate hikes totaling 525 basis points since March 2022, with the objective of controlling inflation. This measure, also referred to as liquidity tightening, has been attributed in part to the decline in cryptocurrency values observed over the past year.
Open interest pumping the price but spot stopped uying #bitcoin. Be careful they may be pumping the price with leverage to convert you in their exit liquidity on spot.#Crypto pic.twitter.com/XeTqfGf80k
— LGNTE (@LgnteCrypto) September 18, 2023
According to a preview note provided to clients on Friday, Scotiabank expressed the view that there is a lack of anticipation for any modifications to the policy rate or balance sheet guidance during this meeting. Rather than that, the emphasis will be placed on adjustments to the forward guidance about the policy rate, the provision of new macroeconomic estimates, and the guidance offered by Federal Reserve Chair Jerome Powell. This particular topic is likely to pertain to the concept of time allocation through monetary transactions.
On Wednesday at 14:00 ET, the Federal Reserve is scheduled to announce a policy decision. This announcement will be followed by a statement and a comprehensive update on economic projections in the Summary of Economic Projections. Notably, the report will include a new “dot plot” that presents estimates of interest rates. Powell is scheduled to deliver a subsequent press conference half an hour thereafter.
According to Scotiabank, the dot plot is expected to maintain the possibility of an additional interest rate increase before the end of the year. This is based on the anticipation of a potential increase in inflation and the inclination of markets to prematurely factor in the resumption of measures to enhance liquidity.
In August 2023, the Electric Reliability Council of Texas (ERCOT) paid Bitcoin miner Riot Platforms $31.7 million to curtail its energy consumption during a heat wave. This was the first time that ERCOT had paid a Bitcoin miner to reduce its energy usage, and it raised a number of questions about the relationship between Bitcoin mining and the power grid.
Scotiabank noted that the Federal Open Markets Committee (FOMC) is presumably cognizant of the existence of three previous instances of inflationary slowdowns during the pandemic, which were ultimately succeeded by a resurgence of inflationary forces.
One other rationale pertains to market management, since the moment the Federal Open Market Committee (FOMC) conveys a strong belief that interest rate increases have ceased, traders swiftly respond by actively engaging in short-term trading and speculating on the likelihood of increased monetary easing. The team further stated that it is now premature for the Federal Open Market Committee (FOMC) to contemplate undertaking such an action.
The analysts at ING have the view that the Federal Reserve is unlikely to implement the projected final increase. The current surge in bitcoin value may be attributed to the perception that the Federal Reserve has concluded its monetary tightening phase. Cryptocurrencies are commonly seen as a specialized investment focused on liquidity, exhibiting more sensitivity to fluctuations in interest-rate expectations compared to equities.
