BTC Investors Brace for Market Turbulence Ahead of Key Fed Decision

• The price of Bitcoin dropped to $57,300 as investors were unsure what to expect before the Fed announcement.

• Permanent holders and whales reduce the demand, which sends the market anticipation of a decline.

Bitcoin and various cryptocurrencies experienced a significant downturn, dropping to their lowest levels in over two months. This decline coincided with broader market pessimism as investors awaited the U.S. Federal Reserve’s impending interest rate decision. Bitcoin’s price dipped below $57,000 for the first time since late February, reflecting a decline of nearly 4.5%.

Investors are anxious as they wait for the Federal Reserve to decide the interest rates. The Fed’s comments with respect to future rate increases and the direction of monetary policy are expected eagerly by the market, with market participants desiring ideas of potential changes in economic policy. Jerome Powell’s speech will be analyzed for any hints of interest rate cuts that would affect various asset classes, including cryptocurrencies.

A recent report from CryptoQuant indicates that the decline in Bitcoin’s price is primarily driven by a significant reduction in demand from both permanent holders and large investors, commonly referred to as ‘whales.’ Permanent holders have slashed their monthly growth by 50%, from over 200,000 BTC in late March to just 96,000 BTC. Similarly, whales have halved their demand growth rate from 12% in March to 6%, signaling a shift in market dynamics.

Market Anticipation of Downturn

According to Matteo Greco, a Research Analyst at Fineqia International, increased selling pressure from long-term holders often serves as an indicator of broader market anticipation of a downturn. This sentiment is reinforced by the decrease in demand, evident in the sharp reduction of Bitcoin purchases from spot exchange-traded funds (ETFs) in the United States. Daily purchases from these ETFs, which peaked in mid-March exceeding $1 billion, have significantly declined.

Compounding the downward pressure on Bitcoin’s price is an increase in selling activity by miners. Daily sales by miners in April have surged to the highest levels since early January, indicating their need to cover operational costs or secure profits. Miners’ selling activity further exacerbates downward price movements in the cryptocurrency market.

Despite the anticipated positive impact of the Bitcoin halving in April, which typically leads to a price increase due to the reduction in new coin creation, the market has continued to experience a decline. Following the halving, Bitcoin’s value plummeted by an additional 15%, underscoring the influence of larger economic factors exerting pressure on the market.

Can Bitcoin Find Support at $57,000?

Looking ahead, from a valuation perspective, there is hope that Bitcoin prices could reverse from the $55,000 to $57,000 range. This projection is based on the short-term holders’ realized price, which falls around $63,000. According to CryptoQuant, the $55,000 to $57,000 level is 10% below the current realized price of short-term holders, historically serving as the ultimate support for prices during bull markets.

Bitcoin’s price movements have historically shown resilience, with reversals around key realized price levels. For instance, in January 2024, Bitcoin’s price bottomed after declining to the short-term holders’ realized price levels of around $38,500.

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