Analysts expect Bitcoin price now to continue its recovery rally above $40,000. This mainly due to rising inflation. But the impending “Death Cross” could thwart its plans. Bitcoin (BTC) fluctuates around $40,000. This as investors waited on Wednesday for the US Federal Reserve to release a new set of economic projections.
The market has shifted to two essential questions. Will US central bank officials signal their intention to raise interest rates in 2023 instead of 2024? And how much does they think inflation will rise by the end of 2021 and next year?
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Prospects for the next steps of the FED
In March, the FED’s latest projection of 11 Federal Open Market Committee (FOMC) officials agreed to keep interest rates close to zero. At least until at least 2023. This indicated a tightening of the FED’s monetary policy in 2024. It would also mean that the FED could adjust its $120 billion asset purchase program earlier than expected.
The prospect of “tightening taps” in the medium term has also increased. Mainly thanks to the latest data on the consumer price index (CPI). This is the FED’s preferred indicator for measuring inflation. April CPI data showed that inflation rose to 4.2%. Subsequently, in May, it grew to 5% for the first time since 1992.
However, the Fed has defended dramatic inflation shots by being “temporary” in nature. Before announcing a rate cut, the central bank has pledged to wait to see how inflation remains at higher levels. The FED’s projections will reveal how long the central bank will wait before further cuts.
David Tawil, president of ProChain Capital, New York’s multi-strategic crypto active fund, believes the Fed’s sentiment to maintain an intact expansionary policy will change after Wednesday’s FOMC meeting.
“As always, the Fed’s statement after the meeting will be analyzed carefully. However, even in the most conservative view, the FED is likely to shift its interest to low unemployment and further growth, signaling a shift toward lower bond purchases and higher rates”. Cointelegraph said.
Bitcoin’s price now is bullish
Projections of rate hikes give Bitcoin at least two years to continue the anti-inflationary bullish run.
The leading cryptocurrency after the fall of the global market in March 2020 showed a stellar show, driven by fears that the FED’s quantitative easing policy, along with trillions of dollars in incentives, will weaken investors’ appetite for government bonds and the dollar itself.
The BTC / USD exchange rate jumped from a low in mid-March 2020 of $3,888 to $64,648 in April 2021, increasing by 1,582%. Meanwhile, ten-year US government bond yields rose from 0.36% in March 2020 to 1.774% in March 2021. Results are inverted to bond prices.
The US dollar index, which measures the strength of the banknote against a basket of major foreign currencies, fell by 9.48% over the same period. However, after reopening, the bond market and the US dollar have recently recovered thanks to strong economic projections in the US.
Meanwhile, Bitcoin has fallen by more than 25%, partly due to Elon Musk’s anti-Bitcoin tweets and due to regulatory fear, uncertainty, and doubt (or FUD).
Nick Spanos, the founder of Bitcoin Center NYC, noted that rising inflation coupled with the FED’s efforts to keep interest rates close to the current 0.25% gives Bitcoin plenty of opportunities to revive its bullish trend.
This is also because other traditional safe harbors, such as government bonds, offer historically lower yields. Bitcoin also promises a higher growth rate.
Spanos said: “After today’s release of the FED’s prospects, I look forward to a temporary reaction to the cryptocurrency market with a rise in the price of Bitcoin. Based on this foundation, repeated testing of the $45,000 level will seem more likely in the coming days.”
Tawil also presented an upward perspective for Bitcoin, noting that investors will still see the cryptocurrency as their “escape to safety” from higher inflation.
“If legislative critics and celebrity personalities can keep their mouths shut when it comes to Bitcoin (which they probably can’t), Bitcoin could make $75,000 by the end of the year,” he said.
A death cross is looming
However, the technical situation on the Bitcoin charts does not agree with the bullish analysts.
For example, the BTC / USD exchange rate recently encountered higher selling pressure in the range of $40,000 – $42,000. As a result, traders fear a drop to other support points around $35,000, $32,000, and $30,000.
Meanwhile, the 50-day simple moving average of Bitcoin (50-day SMA) closure below the 200-day simple moving average (200-day SMA). The crossover is called the “Death cross,” an indicator famous for predicting further price declines in financial markets.
“Whenever there is a death cross, Bitcoin experiences deep falls,” said Rekt Capital, a pseudonymous market analyst. “In 2014, the death cross was preceded by a further decline of -71%. Then, in 2017, by another -65%. And finally, in 2019, by another -55%”. The trader added that the death cross remains a scenario, not a prediction, which means that the price of Bitcoin may rise over the next few days despite a possible bearish indicator.