Bitcoin Fakeout, Fed’s Aggressive Stance, a Cause of Concern for Bitcoin Proponents

16:38 08 April 2022

Fluctuating price action in Bitcoin poses a serious challenge to investors and traders, who’re already bracing for pain from the Fed’s measures to curb inflation.

Facing stern resistances on the upside, Bitcoin struggled to overcome the $48000 hurdle and got pushed down to lower levels. Besides, the Federal Reserve’s aggressive policy to curb the risk of inflation getting out of hand is also making investors and traders wonder whether they’re set up for more disappointment in the weeks to come.

Short-lived Euphoria in Bitcoin market

Following a rough beginning to the year, Bitcoin settled into a long consolidation phase during which time the price action was largely insipid and the crypto token was moving in a tight trading range. However, much to the joy of market participants, it snapped out of its narrowest trading range with a decisive breakout and closed above $45000 for the first time in several months.

This may not be a surprise, however, for those tracking Bitcoin for a long time. Historically, April has been a massive month for Bitcoin bulls. Only on two occasions has Bitcoin closed in red in April in its 12-year long existence, so a massive price action was definitely on the cards. As if on cue, the price action started showing life late March.

Bitcoin finally managed to register its highest level for the year, sneaking up above the 100-day moving average. It was looking good for more and ready to sail upwards to test the 200-day moving average too. The digital token had nicely worked up a bit of a momentum for itself, which took it past the stern $45000 resistance. More buyers rushed in, understandably though, instilling a fresh dose of optimism into the market. And, it seemed like Bitcoin had finally rediscovered its mojo. However, Bitcoin bulls took their foot off the gas as sell side pressure escalated with the price fast approaching the stern $50k resistance level. The momentum came to a screeching halt and fizzled out eventually, resulting in a sharp pullback. But the cryptocurrency found good support immediately and did well to hold its level. It was widely believed that Bitcoin would see off the selling pressure and climb its way up to safety and that the resistance-turned-support level around the $45000 mark would prove to be a nice platform for its journey upwards, but neither happened. Sellers sold through the support level and piled on the pressure, pushing the price back to the very level it rose from two weeks ago. Tracing a perfect fakeout pattern, this two-week-long breakout and breakdown saga is now a matter of serious concern for investors and traders.

Fed’s Aggressive Stance, a Cause of Concern

Expectations for the rise in interest rates in the US has dealt a massive blow on demand for equities and riskier assets including crypto. Reducing elevated inflation sits atop the list of priorities of the Federal Reserve, which is hell bent on cutting back the economic stimulus that it rolled out during the pandemic. With the inflation continuing to rise and the economy starting to shake free from the clutches of the pandemic, the Fed is leaning towards taking a much more neutral policy stance where the economy will no longer receive the stimulus it did the last two years. This comes amid accusations that it has been a little behind the curve on sucking out the money it pumped into the markets through the pandemic.

The Fed is now looking to take things in its own hands with a rapid quantitative tightening plan while also raising short term rates quickly. This is an extremely aggressive stance that could have some serious ramifications across markets globally. Nobody knows how this untested stance to curb price pressures will pan out. But the markets are going to take a tumble anyway. The fear of Fed’s rate hike has sent the markets on a downward spiral already, with the S&P 500 sagging 6% so far this year amid the tough talk from the Fed officials. The markets may fall further, as the Fed looks to shock the markets and tighten up the financial conditions to achieve the response it desires. Investors and traders are starting to get more and more risk-averse, and continue exiting their positions as the uncertainty surrounding the Fed’s intervening measures is causing a lot of consternation in already volatile markets. And with the crypto market heavily correlated with the equity markets, we are likely to see several crypto assets tank in the months to come. If you want to navigate the shifting landscape trading this treacherous market, you would do well to rely on a crypto trading bot. Automated trading services like Bitiq keep trawling the market for the right opportunity and execute trades (both short and long) automatically when they find one. Just lay down the rules you need the bot to follow and voila; no pressure. Dealing with bots of this kind could prove to be extremely beneficial in crypto markets where volatility knows no bounds. In fairly normal market conditions, it would be nice to have a competent trading system running on algorithmic rules that can help you string together successful trades. But in turbid times such as the one we’re witnessing now, it is more important that you bank on a system that lets you cut through all the clutter and helps you win big when you’re winning and lose small when the trade goes against you.