Federal Reserve Hikes Rate by 25bps to Keep Inflation at Bay, Aims for 2% Inflation Rate by 2025

March 22, 2023 Bitcoin.com

Bitcoin, Ethereum and altcoins hold intraday gains after Fed hikes interest rates by 0.75%

September 21, 2022 Coin Telegraph

Bitcoin

In addition to a 0.75% basis point hike, the Federal Reserve also set its 2022 target interest rate at 4.4%, leading Bitcoin analysts to forecast further downside for BTC.

Bitcoin (BTC) retreated and reversed its intraday gains after the Federal Reserve announced its third consecutive 75 basis point (bps) interest rate rise on Sept. 21.

Traders sold the news

BTC's price dropped circa 6.5% from its intraday high of $19,950, hitting $18,660 minutes after the Federal Open Market Committee's statement. Its decline mirrored a similar sudden correction in the U.S. stock market, with the benchmark S&P 500 dropping 0.5% minutes after the Fed update.

*BTC/USD daily price chart. Source: TradingView*

On the other hand, the 10-year U.S. Treasury note yield surged to 3.6% after the Fed's announcement versus 3.56% five minutes before it. Similarly, the yield on the 2-year Treasury note climbed from 3.98% to 4% in the same timeframe.

The U.S. dollar index (DXY), which measures the greenback's strength against a basket of top foreign currencies, surged to 111.57 for the first time in 20 years.

The Fed also published an updated "dot plot," which complied with its officials' individual interest rate projections by the end of 2025. These forecasts signaled additional rate hikes in the future, with the 2022 target sitting at 4.4% and 2023 targeting 4.6%.

The central bank officials also predicted that the policy rate would peak at 4.6% in 2023. Thereafter, it would decline to 3.9% in 2024, followed by another drop to 2.9% in 2025.

All the metrics point to more pain for Bitcoin

The dollar's rise and Bitcoin's fall after the Fed update reflected investors' growing appetite for cash and cash-based instruments compared to riskier assets. Meanwhile, the central bank's dot plot hinted that investor sentiment would remain unchanged until the end of 2023.

Bitcoin price could continue to suffer due to the Fed's hawkish stance and its attempts to bring inflation down from its current 8.3% level. After the central bank update, many analysts noted that BTC's price could break below its current technical support range of $18,000–$20,000, given that the Fed could raise rates by another 75 bps before the close of the year.

I really don't know how much longer this $BTC support can hold pic.twitter.com/YAdkkB9Zww
— CRG (@MacroCRG) September 20, 2022

Bitcoin's technical outlook appeared similarly bearish. Notably, the cryptocurrency has been forming a bearish reversal pattern dubbed the "head-and-shoulders ," whose profit target sits around $14,000, as illustrated below.

Conversely, a rebound from the head-and-shoulders support level of $18,800 could have Bitcoin eye $22,500 as its interim upside target.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Erratic Bond Yields, Lockdowns, and War — 3 Reasons Why Economic Recovery Won’t Happen Quickly

May 10, 2022 Bitcoin.com

All-time highs next? Bitcoin holds $62K as the dollar index tumbles to 3-week lows

October 19, 2021 Coin Telegraph

Bitcoin

The U.S. dollar index reached its lowest levels in three weeks on Oct. 19, triggering a rising wedge pattern.

The U.S. dollar index (DXY) could continue its slide in Q4, according to a classic technical setup known as a “rising wedge.” The greenback’s bearish prospects may boost Bitcoin’s (BTC) price to new all-time highs as it holds above $62,000.

DXY poised for another 1.75% drop

Rising wedges are bearish reversal patterns that begin wide at the bottom but contract as the price increases. As a result, the trading range narrows, which makes the rally unconvincing. That typically prompts the price to break below the wedge’s support line and later fall by as much as the maximum distance between the pattern’s trendlines.

The DXY has been forming a similar price structure since August. Moreover, the index’s decline this week had it break below the wedge’s support line, therefore triggering a bearish setup toward 92.416, down about 1.75% below the level of breakout (around 93.98).

*DXY daily price chart featuring rising wedge setup. Source: TradingView*

A week ago, DXY reached a one-year high of 94.563, reaping the benefits of stagflation fears and the Federal Reserve’s decision to unwind its $120-billion-a-month asset purchase program in November, followed by interest rate increases next year.

But the index dropped to a three-week low on Oct. 19, underscoring that money markets have priced in the Fed’s tapering decision. Instead, their focus has shifted toward policy normalization elsewhere, including the United Kingdom, where analysts have forecasted rate hikes worth 35 basis points by the end of this year.

Bitcoin rallies on ETF FOMO

Bitcoin price found support from the weaker dollar this week, in addition to optimism about the debut of the first exchange-traded fund (ETF) tied to BTC futures on the New York Stock Exchange.

BTC/USD has rallied by over 40% month-to-date to hit a five-month high of $62,987 on Oct. 19. A minor correction ensued, but Bitcoin held $62,000 as its interim support against a weakening dollar sentiment.

*BTC/USD daily price chart featuring ascending channel pattern. Source: TradingView*

Technically, Bitcoin reached the bullish exhaustion level of its prevailing ascending channel range. With its relative strength index (RSI) also overbought with a reading above 70 on the daily timeframe, the cryptocurrency could undergo an interim price correction with a short-term support target near $60,000.

But long term, multiple analysts anticipate Bitcoin’s price to hit $100,000.

Tom Lee, co-founder of Fundstrat Global Advisors, said in a note on Oct. 18 that ETFs based on Bitcoin futures would together attract more than $50 billion in inflows in the first year, adding that BTC could conceivably rise to $168,000 in response.

Jurrien Timmer, director of global macro at Fidelity Investments, noted that Bitcoin would become a six-figure asset by 2023, citing Metcalfe’s law, which measures a network’s value based on its growth rate.

“Other technology innovations, and even, like, a stock like Apple — not that I’m a security analyst — has gone through that same process, where its sales go up 38-fold over 10, 20 years, and its market value goes up by 900-fold,” Timmer told Yahoo Finance, adding:

“So it’s an exponential increase. And based on those metrics, by 2023, my models show $100,000.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, and you should conduct your own research when making a decision.

Gold, bond portfolios are ‘naked’ without Bitcoin, Bloomberg strategist asserts

September 4, 2021 Coin Telegraph

Bitcoin

The declaration appears as Bitcoin pops back above $50,000, with its addition in a Gold-Bond portfolio outperforming the S&P 500 index.

What is protecting an investment portfolio from potential stock market volatility? As per Bloomberg Intelligence's Mike McGlone, a merged exposure of Bitcoin (BTC), gold, and government bonds.

The senior commodity strategist, who sees BTC heading to $100,000, pitted derivatives in a new report representing the three safe-haven assets against the performance of the S&P 500 index, finding that the trio has been outperforming the benchmark Wall Street index at least since the start of 2020.

*Bitcoin-Gold-Bonds performance against the S&P 500 index. Source: Bloomberg Intelligence*

The Bitcoin-Gold-Bonds index took data from the Grayscale Bitcoin Trust (GBTC), SPDR Gold Shares (GLD) and iShares 20+ T- Bond ETF (TLT). The three funds enable investors to gain exposure in the market without requiring to hold/own the physical asset.

Bitcoin more profitable than gold and bonds

McGlone noted that Bitcoin did some heavy lifting in making investors' risk-off strategy successful, adding that their portfolios "appear increasingly naked" without the flagship cryptocurrency even if they remain exposed to gold and bonds.

The statement took cues from the performance of Bitcoin, gold, and the 10-year US Treasury yield against the prospect of rising quantitative easing and debt-to-GDP levels. Since March 2020, Bitcoin has risen almost 1,190%, which comes to be extensively better than spot gold's 25.93% spike.

*BTC/USD weekly price chart. Source: TradingView.com*

Meanwhile, the U.S. 10-year bond yield has jumped from its record low of 0.33% to 1.326% in the same period.

However, despite a healthy spike, the returns on the benchmark government bond have come to be lower than the core U.S. inflation of 5.4%, suggesting that investors who hold bonds as safety against risky equities are making an inflation-adjusted loss.

*US consumer price inflation rose to 5.4% in July. Source: Forex Live*

As a result, lower yields have created avenues for corporates to borrow at meager rates for expansion, thus giving equities a boost. Additionally, investors in the secondary markets have started moving their capital into non-yielding assets like Bitcoin and gold, anticipating higher payouts.

Yield rebound ahead?

Former bond investor Bill Gross, who built Pimco into a $2 trillion asset management firm, noted that bond yields have "nowhere to go but up."

The retired fund manager said that the 10-year U.S. Treasury note yields would rise to 2% over the next 12 months. Therefore, bond prices will fall due to their inverse correlation with yields, resulting in a loss of about 3% for investors who bought debts all across 2020 and 2021.

Federal Reserve purchased 60% of net US government debt issuance over the past year with its $120 billion a month asset purchase program to boost the US economy. However, in August, the U.S. central bank announced that it would slow down its bond-buying by the end of this year, given the prospects of its 2% inflation rate target and economic growth.

“How willing, therefore, will private markets be to absorb this future 60 per cent in mid-2022 and beyond," questioned Gross, adding that the US bond market would turn into an "investment garbage."

"Intermediate to long-term bond funds are in that trash receptacle for sure.”

Rising rates could threaten to draw capital out of overvalued U.S. stocks. At the same time, as a risk-off trade, funds could also start flowing into the Bitcoin market. Julian Emanuel, the chief equity and derivatives strategist at brokerage firm BTIG, shed light on the same in his interview with CNBC in February. Excerpts:

"This is the environment where that catch-up trade is going to show its ability [...] You’re coming from such a low absolute level of rates that higher rates actually is likely to be supportive for alternatives like Bitcoin."

To McGlone, the capital inflow into Bitcoin and the rest of the cryptocurrency market, including Ethereum, would be about finding the next-best investment opportunity. He said that digital assets may represent the "higher-beta potential," adding:

"We see Ethereum on course toward $5,000 and $100,000 for Bitcoin."

Bloomberg strategist explains why 30-year US bonds have ‘bullish implications’ for Bitcoin

August 23, 2021 Coin Telegraph

Bitcoin

Long-dated US Treasury yields are slumping ahead of the Jackson Hole meeting.

Despite Bitcoin (BTC) slipping back below $50,000, more and more investors are likely to move their capital into Bitcoin and gold markets in the second half of 2021 (H2), asserted to Mike McGlone on Aug. 23, the senior commodity strategist at Bloomberg Intelligence.

The financial analyst cited the consistently lower yields offered by the 30-year US Treasury note behind his upside analogy. He noted that if its rate of return persists below 2%, it could enhance the price discovery stage for Bitcoin while posing a competitive advantage for traditional safe-haven assets like gold.

#Bitcoin, #Gold & Long #Bonds: Three Amigos for 2H Appreciation? The U.S. Treasury 30-year yield sustaining below 2% has bullish implications for gold and Bitcoin. Unlike the stock market, the old analog store-of-value and new digital version share substantial corrections.. pic.twitter.com/UYanE4sPSb
— Mike McGlone (@mikemcglone11) August 23, 2021

"Unlike the stock market, the old analog store-of-value and new digital version share substantial corrections," McGlone added, referring to the little reversion in the S&P 500 index in the first half of 2021 (H1) that increases its potential to correct lower in the H2.

In turn, it arranges new capital for other markets with extreme upside potential, such as Bitcoin.

*Bitcoin, gold, and US bonds index versus S&P 500 total return index. Source: Bloomberg Intelligence*

"The S&P 500 up or down 10% in 2H offers a simple binomial model," wrote the Bloomberg analyst in a research note in July.

"If up, it would be about 3x the annual norm since 1928 and buoy the Bloomberg Galaxy Crypto Index above the 1H gain of about 80%. If down, bond yields would likely follow and Bitcoin may be a primary beneficiary."

Bitcoin to reach new record high

The Federal Reserve's unprecedented interference in the bond market after the March 2020's market crash drove rates down. Institutional investors that ideally look for 5% annual yields from the bond market to curb inflationary pressures now grappled with short-term bonds, some of them offering yields below zero.

Meanwhile, yields on the longer-dated Treasury also fell to record lows. That forced investors to look for alternatives in the riskiest parts of the financial markets—higher-returning, non-debt investments like Bitcoin.

"It was the breach of [the 2%] threshold in 2020 that preceded the risk-off swoon and laid the foundation for Bitcoin’s move toward new highs this year," the Bloomberg research noted.

*30-year US Treasury yield versus Bitcoin price. Source: TradingView.com*

Tapering and Jackson Hole

McGlone's statements on bonds and Bitcoin correlation come as Jerome Powell, the chairman of Federal Reserve, prepares to deliver a speech at the Jackson Hole summit this week, typically one of the most influential economic events.

The Fed's efforts to reduce its $120 billion per month bond-buying policy expects to be a dominant theme during the (virtual) Jackson Hole meeting. Investors will watch Powell's words for any clues on how and when the U.S. central bank would begin its tapering program.

In their July 27-28 meeting, Fed officials agreed to start unwinding their bond-buying policy over a sanguine outlook for economic growth and the jobs market.

Nonetheless, the 30-year Treasury yield remained lower after the news, with reports surfacing that investors were still expecting economic downturns owing to the spread of the Covid-19 Delta variant.

"Many clients have not particularly understood how rates markets have moved, and that has brought in a degree of caution you wouldn’t normally see," Guneet Dhingra, head of US interest rate strategy at Morgan Stanley, told the Financial Times.

After the Fed outlook on Aug. 18, Bitcoin price rose by more than 14% to reach their three-month high of $50,784.

*Bitcoin daily price chart. Source: TradingView.com*

The BTC/USD exchange rate slipped below $50,000 on Monday on profit-taking sentiment. At its lowest, the pair's bid was $49,369.

Bond Yields

Traders sold the news

All the metrics point to more pain for Bitcoin

DXY poised for another 1.75% drop

Bitcoin rallies on ETF FOMO

Bitcoin more profitable than gold and bonds

Yield rebound ahead?

Bitcoin to reach new record high

Tapering and Jackson Hole

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