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17.03.2023 02:04 PM
Bitcoin hits $26k amid controversial Fed decision: what to expect from the crypto market next?

Bitcoin and the cryptocurrency market once again found themselves in opposition to the classical financial system. In the short term, this position has already brought positive results in the form of growth in major digital assets.

In the near future, this trend will intensify due to the aggravation of the crisis in the banking system and the need for a quick and decisive reaction from the regulator. However, in the medium and long term, the current easing of monetary policy will have a negative impact on macroeconomic processes, including Bitcoin.

Macroeconomic situation

Let's start with the news of the European markets, where on the eve of the ECB meeting, there were rumors about the termination of the aggressive monetary policy due to the problems of the Swiss bank Credit Suisse. However, the bank will borrow about $54 billion from the Swiss central bank.

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This was another positive signal for Bitcoin as the bank's decision allowed the ECB to continue its current monetary policy and raise the rate by 50 bps. This, in turn, prevented the U.S. dollar from strengthening in the medium term, and therefore kept Bitcoin's investment appeal intact.

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However, the key news for the euphoria in the crypto market was a statement from JPMorgan. The bank claims that the Fed is going to inject about $2 trillion into the banking system. As of March 17, more than $300 billion is already in the banking system, and given the appearance of an additional billion USDT in the crypto market, this is what caused Bitcoin quotes to rise.

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This is a positive development for Bitcoin in the short term, as the increase in the money supply, coupled with the problems of the traditional financial sector, makes cryptocurrencies and precious metals the main beneficiary of the Fed's printing press. However, in the medium and long term, this will have a negative impact on the crypto market.

Medium-term outlook

Fed's $2 trillion injection for the banking system is a forced and undesirable step. It significantly lengthens the process of finally reducing the inflation rate, which means prolonging the problem with liquidity and high interest rates over time.

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In addition, the Fed's decision could trigger another deflationary slowdown. Given the new data on the labor market, which continues to be strong, the key rate hike program may stretch out not only into spring but also into summer.

BTC/USD Analysis

Bitcoin fully realizes the bullish potential provoked by the difficulties in the U.S. banking sector. The asset formed another powerful green candle and consolidated above $26k. It is important to note that technical metrics do not indicate the emergence of a strong seller.

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On the daily chart, the RSI and the stochastic oscillator continue to move higher above 75. On the 4-hour chart, the asset is close to the previous high at $26.5k, but there is no significant bearish volume.

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Given the reactivity of the current upward trend, Bitcoin will end up in the $26.5k–$27k range. To further develop the trend, investors will wait for the Fed meeting on March 22, where a decision will be made to raise the key rate, and further steps of the regulator will be announced.

Results

The current upward trend of Bitcoin is provoked by the deterioration of the macroeconomic situation. The break in the correlation with DXY is a direct confirmation of this. In the medium term, the reasons that allow BTC to update the local high will lead to a powerful corrective movement and the next stage of a significant liquidity crisis.

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