Bitcoin value falling pending the Fed

The day after tomorrow, Wednesday 26 July 2023, a decision is expected from the Fed on rates, and today the value of Bitcoin is on a downward move. 

Indeed, the markets take it almost for granted that the Fed will announce a new 25 basis point increase on Wednesday, so much so that such a decision has already been widely discounted by the markets. 

Therefore, this is hardly the reason that drove the price down today. 

Bitcoin value down in anticipation of Fed rates

Today opened with Bitcoin’s value around $29,800, but over the course of the day it fell all the way below $29,200. 

The descent was sudden, with a single jump from $29,700 to $29,000 in the space of just two minutes. However, there does not appear to have been a single piece of news that triggered this drop. 

However, such a downward slide was in the air, with several analysts having speculated about it in recent days. 

Furthermore, this morning, with the US markets closed, European markets went into a bit of a tailspin due to not-so-good data from the Eurozone economy, and in particular from Germany. 

Hence, it was probably the European markets that initiated the decline this morning, perhaps on the back of some pessimism that is beginning to spread, especially in the short term. 

On top of that. the day after tomorrow there will be a rate hike in the US, so the situation does not look particularly rosy at the moment. 

Previously, over the past 15 days, the price of BTC has remained fairly stable around $30,000, with some intraday volatility, but overall with almost no significant price changes over the past two weeks.

The crypto market

Research analyst at Fineqia International, by Matteo Greco, notes that after the big rebound in the crypto market following the favorable ruling against XRP, digital assets have found some price stability. 

Investors are now focused precisely on the upcoming FOMC meeting that is expected to decide on a rate hike. 

The problem seems to be that the Fed may end up having to raise rates twice more before the end of 2023, including the increase the day after tomorrow, partly because a decidedly strong labor market in the United States still leaves room for the central bank to raise interest rates with the goal of bringing down inflation.

Greco also notes that the SEC’s official decision to agree to review applications, to create spot Bitcoin ETFs, has also contributed to a sharp reduction in the discount applied to the Grayscale BTC Trust (GBTC), which has reached 25% (lowest level since April 2022). 

GBTC is currently the largest traditional financial product using a digital asset as its underlying, with about $18.7 billion in AUM (Assets Under Management). 

The increasing likelihood of approval of a spot ETF is leading to the reduction of the discount applied to the trust, due to increased investor expectations of seeing the product finally converted into an ETF. 

Greco also points out that about 55% of BTC supply has not moved in the past two years, showing an increase in long-term holders at the same time as a reduction in short-term speculation. 

In addition, the amount of Ethereum (ETH) held on exchanges has decreased by 31% since November 2022, while ETH in staking has recently exceeded 20% of supply, reaching a higher level than the amount of ETH held on exchanges.

Greco states: 

“Despite a cautious attitude of investors in the short term, especially due to the rate hike expectations at the forthcoming FOMC meeting, the analysed metrics concerning BTC and ETH suggest a period of accumulation, with investors that are buying digital assets and holding for a long period looking for a price increase in the long run.”

Not everything is going down

However, there are a few exceptions. 

Indeed, today Bitcoin is losing more than 2%, and Ethereum more than 1%, but for example Dogecoin is up 5%. 

Among the major cryptocurrencies, only Dogecoin is going up, but also the new Worldcoin (WRD), which was launched on exchanges only today with a +70% at the opening, later decreased to a +50%. 

Trust Wallet (TWT) also rises by 6%, while no other significant rises are recorded among the top 100. 

It is possible that it will not be so much the Fed’s almost obvious decision on rates that will move the market on Wednesday, but more importantly the words that Fed Governor Jerome Powell may say later during his press conference. 

Right now, markets are betting that there will not be another rate hike by the end of the year, after the one in July, but if Powell were to hint that there could realistically be another one, markets could react badly.