How will the possible decision of the Federal Reserve to raise interest rates affect the price of Bitcoin?

With half of US banks reportedly on the brink of bankruptcy, today’s decision by the Federal Reserve on whether to raise or lower interest rates could be the most important event of the year in determining Bitcoin’s price trend.

According to NewsBTC, in March, the Federal Reserve increased the interest rate by 0.25 percentage points. This increase at that time would pave the way for the future decisions of the American central banks. Jerome Powell, the bank’s president, also clarified that although there is a possibility of further interest rate hikes, the decision will depend on the data.

The possibility of an increase of 0.25 percentage points in the interest rate despite the opposition

While the consumer price index rose 5% year-on-year in March (the smallest increase in nearly 2 years), core inflation has proven to be very sticky. However, the market expects today’s 0.25 percentage point increase in interest rates to be the last upward trend in this cycle.

According to FedWatch data, 86% of market participants believe the Federal Reserve will raise interest rates today, despite strong opposition from US policymakers yesterday. Members of Congress, led by Democrats, called on the Federal Reserve to stop raising interest rates.

On Monday, 10 senators and representatives, led by Elizabeth Warren, wrote a letter to Federal Reserve Chairman Jerome Powell expressing concern about their current monetary policy and calling for a recession that would hurt jobs and small businesses. .

On Monday, 10 senators and representatives, led by Elizabeth Warren, wrote a letter to Federal Reserve Chairman Jerome Powell expressing concern about their current monetary policy and calling for a recession that would hurt jobs and small businesses. .

Opponents of the current aggressive policies argue that the fastest cycle of interest rate hikes in the Fed’s history has created deep cracks in the US banking system. After the collapse of Silicon Valley banks, Signature Bank and First Republic Bank, many other US banks are now at risk of bankruptcy.

In addition, the recent collapse of First Republic Bank exacerbates the credit crunch: a decline in bank lending due to shrinking bank deposits. According to an AP report yesterday, half of the 4,800 US banks’ assets are worth less than their liabilities.

Professor Amit Seru, a banking expert at Stanford University, said:

The fact that thousands of banks are under so much pressure is scary. Let’s not pretend that this is only about Silicon Valley Bank and First Republic. A large part of the US banking system is potentially on the brink of bankruptcy.

As a result, according to the Fedwatch report, the market believes that the trend of increasing interest rates will not only stop after today’s meeting, but will also be reduced twice this year. This prediction is contrary to the opinion of the Federal Reserve, which in its latest report predicts a 5% interest rate for the year 2023.

How will the price of Bitcoin react?

The 0.25 percentage point increase in interest rates seems to have already had its effect on market prices and is not expected to affect the price of Bitcoin. As a result, when the interest rate is announced at 21:30 Tehran time, you should not expect much price fluctuation. It is unlikely that the Fed will decide on an early interest rate freeze, the only decision that could have much impact on the market.

For this reason, all eyes will be on Powell’s press conference at 23:00 tonight Tehran time. Perhaps the most important part of Powell’s remarks will be whether the Federal Reserve will stop raising interest rates in June. In this case, the price of Bitcoin is expected to show an immediate upward reaction. If Powell comments to the contrary or states that decision-making depends on the data, the market will likely be bearish.

Another important issue for Bitcoin will be interest rate cuts later this year. Especially if Powell insists that the Fed will keep interest rates high until 2024, it could have a negative impact on the price of Bitcoin. But now the question is whether Pavel is wrong or the market and who will admit their mistake first.

Powell’s remarks on the US banking crisis and expectations of a soft landing (recession) will be another important part of his remarks today. Both of these issues have the potential to change the price of Bitcoin.

Meanwhile, traders should watch out for early price action and fake breakouts. Cryptocurrency analyst Ted (tedtalksmacro) explained that hedging trades are usually opened shortly after interest rate announcements. When these positions are opened, a small swing will occur, and after the positions are redeemed, the real movement begins. That is why the price fluctuates again after that.

Finally, as the open short positions are closed, the cash market takes control of the actual movement. Ted advised:

In this situation, you should follow the cumulative volume delta (CVD) of the spot market and check whether it is different from the trend of the regular contracts or not… After the press conference, we can measure things more clearly; Because hedging transactions are opened.