The Bitcoin and crypto market could lead to another downward trend until March 22.
QCP Capital, Asia’s leading digital asset trading company based in Singapore, has released a new market analysis related to the current macroeconomic environment, calling the meeting of the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed) on the 22nd of this month is the most important of the whole year.
As the trading company explained, this week was quiet in terms of major macro data releases. The next major economic data point is the ADP National Employment report, a monthly report of economic data that describes the state of nonfarm private sector employment in the United States.
But more important is what the Fed has been releasing in speeches lately. Fed officials are constantly talking about a long hike in interest rates, and some have commented on the difficulty of achieving a soft landing.
Therefore, according to the QCP, the March 22 meeting will be a trend for the whole year, because market participants will see where the Fed will place the terminal rate in 2023 and whether the Fed plans to reduce the rate in 2024. The trading company thus refers to the so-called plot point.
4 / We believe this month’s FOMC (March 22) will set the stage for the rest of the year because market participants will be able to see where the Fed sees the terminal rate in 2023, and if the Fed sees cuts in 2024.
– QCP Capital (@QCPCapital) March 3, 2023
This tool, officially called the Policy Path Chart, is published by the Fed four times a year, in March, June, September and December, after the 16-member FOMC meetings. It will show what level and how long the Fed’s “high for longer” strategy can extend.
DXY Remains The Leading Indicator For Bitcoin And Crypto
According to QCP, the dollar index (DXY) will continue to lead the way for the Bitcoin and crypto markets. The dollar’s weakness earlier this week was due to China’s manufacturing purchasing managers’ index, which reached 52.6 points. “With this, the narrative of China’s reopening has reawakened,” which caused the price of Bitcoin to rise.
However, in the long term, QCP expects DXY to rise, which should put pressure on the price of risk assets like Bitcoin due to its inverse correlation. There are three reasons for this, according to the trading company:
First, the yield curve has shifted higher because the market is constantly pricing in higher terminals.
Second, global liquidity is tightening again as the PBoC and BoJ reduce liquidity injections, and will continue to decrease as central banks continue to fight inflation.
The third reason is that the price-to-earnings ratio (P/E) of the S&P 500 is rising despite real returns. “A violent correction is on the books if the two measures continue to diverge,” suggested QCP Capital.
Thus, the DXY and the S&P 500 may be the biggest argument for a return from the bear market, along with the crypto-intrinsic risk with the Silvergate bank.
In terms of the volatility curve, QCP is now observing that it is flatter than the previous sell-off, indicating that the market expects a lopsided trading environment in the medium term.
At this vol level, we are long vega in anticipation of some volatility as we head to the FOMC at the end of the month.
At press time, the price of Bitcoin stood at $22,346, still digesting the crash during the opening trading hours in Hong Kong.
Option images from CCN, Charts from TradingView.com