Readers essentially sanctioned Bitcoin following last night's hawkish Fed meeting, with BTC/USD bottoming to $18,157, the lowest since June 19, accentuating a downward move that began there. Now over a week old.
The Fed proceeded with a new rate hike of 0.75%, a decision that had been widely anticipated but accompanied by other hawkish elements.
The Fed sends Bitcoin down.
In particular, the dot-plot chart, which describes Fed members' rate forecasts, showed a rise in rate expectations for the end of the year.
The members of the FOMC indeed anticipate a Fed Funds rate of 4.4% at the end of the year, which implies that the Fed will raise its rates by 1.25% during the next two meetings combined, a detail which has not eluded Bitcoin traders. Moreover, the dot plot also shows a consensus that the Fed will continue to raise rates in 2023.
It should also be noted that Fed chief Jerome Powell made remarks at least as hawkish as before during the press conference following the rate announcement, guaranteeing in the eyes of the market that the central bank will continue to tighten. Aggressive monetary policy over the next few months.
Why are rising rates penalizing BTC?
However, the tightening of monetary policy, such as the increase in rates, has a solid downward impact on Bitcoin and the cryptocurrency market in general. Indeed, rising rates increase the appeal of risk-free investments indexed to central bank key rates, effectively reducing the comparative appeal of risky assets such as Bitcoin.
Rising rates also mean that it is less profitable and ultimately more risky for investors to borrow funds at fixed rates to invest in cryptocurrencies like Bitcoin or other financial assets.
Finally, rising rates threaten to plunge the world into a recession, which generally encourages investors to be more cautious and stay away from highly speculative assets such as Bitcoin.
This is why the rate increase of the Fed and other central banks and market expectations in this regard, have been one of the most influential factors in recent months on the price of Bitcoin and other cryptocurrencies.
What does the technical analysis say about the BTC/USD trend?
From a graphical point of view, yesterday's further fall in Bitcoin obviously darkens the picture even further for the cryptocurrency, as seen in the daily chart below:
The next support in sight is the June 18 low, near $17,600. Then, no more credible support can be spotted before the crucial psychological threshold of $15,000. On the upside, the critical psychological point of $20,000 is the first significant hurdle for Bitcoin.
However, the daily chart tells us that it will take more for BTC's currently negative underlying trend to be challenged. Indeed, one can spot a bearish trend line extending from Bitcoin's all-time high in November 2021.
This trendline, currently located around $23,500, must therefore be crossed for Bitcoin's bottom profile to improve. Until this is the case, the decline will remain the most likely scenario for BTC/USD.