Upcoming FOMC Meeting Poses Risks for Bitcoin Price Action

Bitcoin has rebounded to above $42,000 over the past weekend, recovering nearly 15% from recent lows below $38,000 earlier this month.

However, the cryptocurrency now faces significant resistance around the $43,000 to $45,000 level. Breaking above this with conviction will likely require a catalyst and renewed confidence among longer-term Bitcoin holders.

TLDR

• BTC price rebounded to $42,800 over the weekend after dropping below $39,000 earlier this month, but faces resistance around $43,000-$45,000
• This week’s Federal Open Market Committee (FOMC) meeting could significantly impact crypto markets, with a potential rate cut in March
• Bitcoin mining difficulty is forecast to increase by 4% in the coming days, showing resiliency among miners despite recent price drops
• Short-term and newer Bitcoin holders (less than 1 month) currently have an average realized price of around $44,000, meaning they are on average underwater at current prices below $43,000
• Breaking the $44,000 threshold with conviction would signal renewed positive momentum and confidence among longer-term holders

This week brings a Federal Open Market Committee (FOMC) meeting that could strongly influence market momentum. While a rate hike this week is essentially off the table, the potential for cuts as early as March has risen to 46%. The Fed has signaled a data-dependent approach, and any recognition of cooling inflation or adjustments to quantitative tightening policies could spark a risk-on environment.

Macro factors like a potential drop in the U.S. dollar index (DXY) after FOMC could also benefit Bitcoin. Historically, moves downward in DXY have preceded increases in Bitcoin’s value.

On the mining front, difficulty is set to increase by 4% after the next automated readjustment. This demonstrates resilience among Bitcoin miners despite decreased profitability in recent months. Hash rate has also recovered by 10% in the past week as operations continue investing in growth.

Yet network fundamentals can only carry so far if new holders begin capitulating. According to on-chain analysis, investors who purchased Bitcoin less than one month ago need prices above $44,000 to avoid losses. This range represents the breakeven point and equilibrium level for many short-term holders.

Should Bitcoin convincingly break resistance around $44,000, it may indicate renewed conviction among longer-term investors and set the stage for a more sustainable uptrend. Without this, downside risk remains given fragile sentiment among newer market participants. Their selling pressure could perpetuate consolidation or correction.

How markets digest upcoming Fed signals and whether Bitcoin can definitively flip short-term holder breakeven levels into support will determine if this recovery has legs or fizzles out. The coming days are crucial for establishing nascent 2024 trends.