The Bitcoin and crypto market could be headed for another sideways trend until March 22.
QCP Capital, a leading digital asset trading firm in Asia based in Singapore, has released a new market analysis related to the current macroeconomic environment, calling the next Federal Open Market Committee (FOMC) meeting of the U.S. Federal Reserve (Fed) on the 22nd of this month the most important of the entire year.
As the trading firm explains, this week has been a quiet one in terms of major macro data releases. The next major economic data point will be the ADP National Employment report, a monthly report of economic data that reflects the state of nonfarm private sector employment in the United States.
More important, however, is what the Fed has been letting slip in its speeches lately. Fed officials have consistently talked about a prolonged interest rate hike, with some even commenting on the difficulty of achieving a soft landing.
Therefore, according to QCP, the March 22 meeting will be trend-setting for the entire year, as market participants will see where the Fed will place the terminal rate in 2023 and whether the Fed plans to cut rates in 2024. The trading firm is thus referencing the so-called dot plot.
4/ We believe this month’s FOMC (22 Mar) will set the stage for the rest of the year as market participants will be able to see where the Fed sees the terminal rate in 2023, and if the Fed sees cuts in 2024.
— QCP Capital (@QCPCapital) March 3, 2023
This tool, officially called the Policy Path Chart, is published by the Fed four times a year, in March, June, September and December, following meetings of the 16-member FOMC. It will show to what level and for how long the Fed’s “higher for longer” strategy might extend.
DXY To Remain As Main Indicator For Bitcoin And Crypto
According to QCP, the dollar index (DXY) will continue to lead the way for the Bitcoin and crypto market. The dollar’s weakness earlier this week was due to China’s manufacturing purchasing managers’ index, which reached 52.6 points. “With this, the China reopening narrative has reawakened,” which has caused Bitcoin prices to rise.
In the longer term, however, QCP expects the DXY to rise, which should put pressure on the prices of risk assets like Bitcoin due to the inverted correlation. There are three reasons for this, according to the trading firm:
Firstly, yield curves have been shifting higher as markets continually price in a higher terminal for longer.
Secondly, global liquidity is tightening again as the PBoC and BoJ reduce liquidity injections, and will continue to decrease as central banks continue their fight against inflation.
The third reason is that the price-to-earnings (P/E) ratio of the S&P 500 is creeping up despite rising real yields. “A violent correction is on the books if these two measures continue to diverge,” suggests QCP Capital.
Thus, the DXY and the S&P 500 are likely to be the biggest arguments for the return of a bear market, along with the crypto-intrinsic risks with Silvergate bank.
In terms of the volatility curve, QCP is currently observing that it is much flatter than previous sell-offs, suggesting that the market expects a sideways trading environment in the medium term.
At these vol levels, we are positioning long vega in anticipation of some volatility as we head towards FOMC at the end of the month.
At press time, the Bitcoin price stood at $22,346, still digesting the crash during the opening trading hour in Hong Kong.
Featured image from CCN, Chart from TradingView.com