In the run-up to the Federal Open Market Committee (FOMC) meeting scheduled for Wednesday, March 20, the bitcoin and cryptocurrency market is experiencing a serious downtrend. The price of btc has plummeted by approximately -10% over the past two days, and ethereum (eth) is down by -12% in the same period.
Anticipation surrounding the Federal Reserve's stance on interest rates has increased in the wake of recent economic indicators, including unexpected spikes in the US Consumer Price Index (CPI) and Producer Price Index (PPI). US, which generated volatility in all markets, including digital assets.
The consensus, with a probability of 99% according to the CME FedWatch tool, suggests that interest rates will remain stable. However, the focus is on the Federal Reserve's dot plot, a graphical representation of individual members' expectations about future interest rates, which could provide crucial information about the outlook for monetary policy in the coming months. and years.
Anna Wong, Bloomberg's chief U.S. economist, commented via The FOMC sentiment dispersion is visualized below with the help of our new Fed Weekly NLP Spectrometer. “
Another reason the FOMC isn't ready to make cuts: Members don't yet have broad agreement on that need. The FOMC sentiment dispersion is visualized below with the help of our new Fed Weekly NLP Spectrometer. (Interactive version in @The terminal BECO models —> Fedspeak —> spectrometer) pic.twitter.com/Kney89BERM
– Anna Wong (@AnnaEconomist) March 19, 2024
How will bitcoin and cryptocurrencies react?
Macroeconomic analyst Ted, expressing his perspective on X, highlights the nuanced relationship between macroeconomic trends and the crypto market at the moment. Ted clarified that one-time bitcoin ETF flows have taken a backseat while macro factors have come to the fore.
He fixed via X, “If btc is to be considered digital gold, it is expected to mirror the movements of the gold market, albeit with a higher degree of volatility. In the current climate, with the market preparing for the next Federal Reserve meeting, macroeconomic factors momentarily take priority, driven by the recent evolution of the PPI and CPI numbers.
Furthermore, he speculates that “despite eventual comments from (Federal Reserve Chairman) Powell, the market has already adopted an aggressive stance in anticipation of a 'higher for longer' interest rate scenario.”
Michaël van de Poppe, a leading figure in the field of cryptographic analysis, provided his thoughts on the recent downward movement in bitcoin price through X, citing a combination of factors including the anticipation of the FOMC meeting and significant capital outflows from Grayscale's bitcoin Trust. Van de Poppe warns: “It is usually in these pre-FOMC periods, perceived as intervals of risk aversion, that the savvy investor finds opportunities to 'buy the dip.'”
Reflecting adjustments in market sentiment, analyst @10delta on X he pointed the strategic positioning of investors in anticipation of the Federal Reserve's interest rate decisions. “The market is currently pricing in a reversion to November 23 interest rate levels, a clear indication that investors are adjusting their expectations based on the potential Fed turnaround noted in the dot chart above,” he noted. .
Consequently, he argues that the FOMC and the dot chart will be a “buy the news” event as market expectations are adjusting appropriately. “Macro concerns (…) should dissipate and idiosyncratic crypto bullish factors, such as ETF inflows (…) as well as the btc halving, will take hold. Considering all this, I think there is a good R/R to 'buy the dip' heading into the March 20 event,” the analyst added.
Goldman Sachs predicts (only) three rate cuts this year
Goldman Sachs Research recently provided detailed analysis in its March FOMC preview. The report highlights the nuanced balance the Federal Reserve seeks to strike between controlling inflation and supporting economic growth.
“Our revised forecast now anticipates three rate cuts in 2024, a slight adjustment from our previous prediction, mainly due to a modest pick-up in the inflation trajectory,” Goldman Sachs analysts clarified. They further speculate: “While the immediate focus is on maintaining current rate levels, the trajectory of rate cuts will depend on inflation dynamics and economic performance indicators.”
Goldman Sachs also predicts that the Federal Reserve will continue to aim for a first cut in June. “This, combined with a default pace of one cut per quarter, implies that the most natural outcome for the midpoint is to remain unchanged at 3 cuts or 4.625% by 2024,” the banking giant commented.
Goldman: Inflation has been firmer in recent months, but we believe it is still on track to fall enough by the June FOMC meeting to make a first cut. pic.twitter.com/0I1BPYiU8W
– Mike Zaccardi, CFA, CMT (@MikeZaccardi) March 17, 2024
As the cryptocurrency market and broader financial ecosystems await the results of the FOMC meeting, the prevailing sentiment is one of cautious anticipation. Market participants are closely monitoring the Federal Reserve's comments for indications on future monetary policy directions via the dot plot.
The question for the bitcoin and cryptocurrency market is whether there will be a nasty surprise or whether market participants were right with their “higher for longer” political assumption.
At press time, btc found support at the $62,400 price level, trading at $63,118.
Featured image from Shutterstock, chart from TradingView.com
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