Bitcoin – One Month Until Armageddon?

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  • Bitcoin is looking technically very well placed for further gains
  • However, in a month the FOMC will decide on how to help the wider economy
  • Their measures could have an immediate and devastating impact on Bitcoin

Bitcoin has seen a nice recovery since dropping back to $33,000 three weeks ago, and from a technical perspective looks ready to keep going further. Indeed, normally we would be advocating selling the family pets to buy more, but hovering on the horizon is the Federal Open Market Committee (FOMC) meeting on March 15-16. At this meeting the Federal Reserve will announce its plans for changes in monetary policy to ease the inflation spike the U.S. is experiencing, and worse could be on the way. What are the chances that Bitcoin has a month of green left before the red dead resumption?

Fed Planning to End Bitcoin Party

The world of risk-on assets has been enjoying life hugely during the pandemic, with traditional and digital assets alike going crazy as money printers worldwide went into overdrive. However, in the last six months the Federal Reserve, among others, has given clear signals that the party is about to come to an end, with the FOMC meeting next month looking likely to be the time when those measures are confirmed.

The fear in the markets is so real that even the mere mention of interest rate hikes has caused all major indices, and Bitcoin, to drop. With everybody expecting an interest rate hike to be announced after the meeting, there is an argument that the doom and gloom will already have been priced in by the time the plans are announced. This would be true ordinarily, and there might be a small pump afterwards if the rise is as predicted or better, but it negates the possibility of one other measure – quantitative tightening.

Quantitative Tightening is Not Factored In

As we outlined last month, quantitative tightening is the exact opposite to the quantitative easing that reduced the value of the dollar and caused Bitcoin and traditional assets to visit the moon in 2021. Now, with the economy starting to find its feet again, the Federal Reserve wants to basically conduct the equivalent of a token burn, which makes government bonds and other dollar-based instruments much more appealing.

Therefore, confirmation of quantitative tightening next month will essentially be giving the green light for institutional investors to swap their stocks, shares, and bitcoin for dollar-based instruments which are safer and, we assume, will once more represent reasonable interest rates.

It doesn’t matter then if an interest rate hike is priced in because quantitative tightening won’t be, mainly because it’s immediate impact won’t be felt until the selling actually starts.

Technically Bitcoin looks good for the next month or so (assuming Russia doesn’t invade Ukraine), but after that we could be seeing the bull run go on major pause for the rest of 2022.